“Given the significant uplifts in holiday sales over the past couple of years, and the current pressures on consumer finances, this level of growth can be chalked up as something of a win for consumers,” said Neil Saunders, managing director for retail at GlobalData.
U.S. retail sales between Nov. 1 and Dec. 24 were up 3.1 percent compared with the same period a year before, according to Mastercard SpendingPulse, which measures sales in-store and online across various forms of payment. Online shopping accounted for a large share of the increase, rising 6.3 percent, compared with a 2.2 percent jump for in-person shopping. Apparel sales rose 2.4 percent. Plus, strong demand for in-person dining powered a 7.8 percent jump in restaurant spending.
Some categories showed declines: Jewelry sales, for example, fell 2 percent, while electronics declined 0.4 percent. (The overall report excludes car sales and is not controlled for inflation.)
The cheery holiday report was expected, building on a strong summer and third quarter, when the economy grew like gangbusters. Sales on Black Friday set a record of $9.8 billion, up 7.5 percent from the year before. Cyber Monday came in even higher at $12.4 billion, according to Adobe Analytics.
This year’s spending on concerts, plane tickets and movies also held strong in the face of higher-than-normal inflation, all as the Federal Reserve pushed to slow the economy. This year central bankers got borrowing costs high enough to make it prohibitively expensive for many people to buy homes or cars, or for businesses to get fresh credit. The goal is to tame consumer demand and get inflation down to a more normal level of 2 percent, stabilizing the economy after the pandemic’s upheaval.
By many measures, the Fed’s fight is working. Inflation eased to 2.6 percent in November compared with the year before, using the Fed’s preferred gauge. The job market is still growing, but at a more sustainable pace. And for the first time since the pandemic’s early days, central bankers are eyeing interest rate cuts, a clear signal that officials think they can take their foot off the brake and let the economy continue flourishing.
“The Mastercard spending data bodes well for the Federal Reserve,” said Joe Brusuelas, chief economist at RSM, “as they’re looking to cut rates to sustain the U.S. economic expansion.”
At the same time, though, the Fed’s aggressive rate increase campaign hasn’t yielded typical results. Ordinarily, high inflation and high interest rates might make people nix an extra beach vacation or holiday spending spree and hunker down instead. Time and again, the data shows that isn’t happening.
The housing market, too, has proved especially resilient to the Fed’s push to tamp demand. Mortgage rates hovered over 7 percent for much of the year, which would usually cause buyers to bow out of the market and allow home prices to fall. But a shortfall of homes, combined with scores of households that can pay all cash or swallow a higher rate, means the market is chugging along. Data released Tuesday from the closely watched S&P CoreLogic Case-Shiller Home Price Index showed home prices rose 4.8 percent nationally in October over the year before, marking 2023’s strongest annual gain.
Fed officials won’t offer a clear timeline on when they might shift to rate cuts in 2024. But the financial markets didn’t wait to celebrate, with the Dow Jones Industrial Average hitting an all-time high this month, and the S&P 500 inching closer to its own record. Through it all, the Fed’s message remains measured but clear: The economy — two-thirds of which is powered by consumer spending — is in good shape.
“We’re obviously looking hard at what’s happening with demand,” Fed Chair Jerome H. Powell said this month. “We see the same thing other people see, which is a strong economy, which really put up quite a performance in 2023.”
Granted, not all Americans are part of that story, with the strain of gasoline, grocery and rent costs squeezing budgets for many. Gas prices averaged $3.12 per gallon on Christmas Day, according to AAA, nearly in line with one year ago.
Torsten Slok, partner and chief economist at Apollo, said he’s keeping a close watch on myriad factors that can put vulnerable households in even more precarious positions. Those include savings that are running dry and an uptick in credit card delinquencies.
“There is certainly a group of households that are feeling the pinch of interest rates having gone up,” Slok said. “Very broadly speaking, it’s younger households and households with lower FICO scores and lower savings.”
To offer some extra wiggle room, retailers started their promotions early this season, giving consumers time to hunt for the best deals, said Steve Sadove, a senior adviser at Mastercard and the former CEO of Saks. Sadove said that helped give consumers “the most bang for your buck” and resurfaced spending trends from before the pandemic.
