(The Hill) — If the Christmas tree looks larger this year, the reason may be the smaller pile of gifts beneath it.
Retail analysts expect Americans to spend roughly the same amount on holiday gifts this year as last. Yet, because of inflation, the money will buy fewer gifts. Seven fewer gifts, to be exact.
Those gifts will cost $507 on average and make up about a third of the $1,455 the typical consumer plans to spend in the year-end holiday season, a tabulation that also considers decorations, furnishings, dinner outings and movies.
Other forecasts and polls on holiday spending reached less Grinch-like conclusions, but no one in the consumer industry expects a Christmas for the ages.
A November survey from Gallup found the average holiday shopper preparing to spend $867 on gifts this year, compared to $886 last year. Holiday budgets have tightened as Christmas draws closer, Gallup found, a reflection of lingering inflation and dwindling consumer savings.
All told, Santa will be toting a lighter bag down the chimney this year.
“You’ve got this huge proportion of people who say they’re in a worse financial situation, but they’re still going to make this happen for their families,” said Lupine Skelly, a manager at Deloitte Services LP’s Consumer Industry Center.
Holiday shopping forecasters start early in the season, to keep pace with holiday shoppers. A September survey by Bankrate, the consumer finance company, found that half of holiday consumers planned to start shopping before Halloween. Online giant Amazon responded to the expected demand with a special “Prime Day” in October. Other retailers followed suit.
“If your heating costs are more and you’re paying more for gas, why not start getting gifts in October and spread it out more?” Skelly said.
The traditional Christmas shopping season begins after Thanksgiving. People are starting earlier to spread purchases over more paychecks and to patrol for discounts. They’re also worried about the supply chain, the consumer pipeline that broke down for long stretches of the COVID-19 pandemic, even though warehouses have largely refilled.
Mostly, though, consumers are worried about inflation. Rising consumer prices “is the elephant in the room,” said Ted Rossman, senior industry analyst at Bankrate. Inflation reached 9% last summer, a generational high. It has since retreated to 7%, but consumer prices are still rising faster than wages.
“People are spending more,” Rossman said. “They aren’t necessarily getting more.”
Wells Fargo projects a 6% increase in holiday sales in November and December, a figure that “says more about prices than it does about increased holiday spending,” the financial services company said in a report titled 2022 Holiday Sales: The Last Hurrah.
The title reflects the firm’s gloomy forecast for 2023.
“Essentially, this is the last pretty big holiday season before our ultimate expectation for the economy to fall into recession next year,” said Shannon Seery, a Wells Fargo economist.
The last two years saw large surges in holiday spending, according to the Wells Fargo report, a boost driven by federal stimulus payments and a healthy economy.
On the upside, “people still feel pretty decent job security,” Seery said. “I think the fact that they’re not worried about their job situation yet is why they’re continuing to spend.”
The key word in her analysis is “yet.” Wells Fargo predicts a recession in the second half of 2023.
“Everybody in my field is talking about recession, talking about recession, and the actual consumer and household are not yet concerned,” Seery said.
“You’ll eventually start to see some layoffs. And that’s when it starts to bite the consumer.”
Most Christmas shoppers are factoring inflation, if not recession, into their budgets. Surveys by Deloitte, Forbes and others found consumers planning to hunt for lower-priced gifts, to exchange them with fewer people and even to shop at resale stores.
Holiday planners are also buying fewer decorations.
“If you remember, during the pandemic, people were sick at home,” Skelly said. “They were decorating like mad and buying furnishings. So that’s an easy area to cut back on.”
But if the holiday spirit seems a bit muted this year, inflation may not be entirely to blame. The annual Christmas spending binge has faded in recent years as a retail phenomenon.
Bloomberg columnist Justin Fox analyzed Census numbers and found that Americans spend less of their annual retail budget at Christmastime now than 20 or 30 years ago. December’s share of all retail spending fell to 11.4% in 2021, the lowest rate in at least 30 years.
“The theory seems to be that people are buying more throughout the year,” Rossman said. “They’re not doing it as much during the holidays.”
Economists fret about the fundamental inefficiency of the Christmas gift: In most cases, the giver can only guess if a gift is something the recipient wants or will ever use.
This year, with money tight, shoppers aren’t messing around. The Deloitte survey found consumers expecting to spend an average of $252 on gift cards this year, up from $235 last year. With a gift card, the recipient chooses the gift. In every other major retail category, shoppers expect to spend less.
A Miami couple told The Wall Street Journal they had instructed their children to choose “one really good gift” apiece, rather than purchase several gifts from a list, or on a hunch. Parents are leading children into malls and asking them to point out exactly what they want.
Many families will go into debt to finance Christmas gifts. The Bankrate holiday survey found that roughly half of shoppers plan to charge at least some purchases to credit cards, and some respondents admitted that they will need more than a month to pay them off.
“The silver lining is that a lot of people have saved more in the last couple of years,” Rossman said.
The national savings stockpile peaked at more than $2 trillion in 2021. Inflation has diminished it to around $1.5 trillion, however, and economists predict even that massive sum won’t last through 2023.
People are saving less now than a year or two ago, a product of rising inflation. The national savings rate dwindled to 2.3% in October, down from 14% in October 2020.
Meanwhile credit card debt is rising, and the annual holiday binge will undoubtedly push the tab higher.
“Unfortunately,” Rossman said, “I feel like the January debt hangover could be a big one.”