Anna Rathbun, Chief Investment Officer
The Economic Impact of Holiday Shopping
After achieving record-high Black Friday sales, some Americans may be expecting this peak in consumer spending to boost the economy. However, at the risk of sounding like a Grinch, it is important to understand where this money is coming from before we get too excited about the potential economic impact of this phenomenon. While holiday shopping does have the potential to positively impact the U.S. economy in the short term, the way this shopping was financed also has the potential to negatively affect consumers in 2024.
Third quarter earnings from some of the largest retailers in the U.S. suggest that consumers have been spending less money as they begin to experience increased financial stress, but according to a survey from WalletHub, nearly 1 in 4 Americans planned to spend the same as or more than last year on holiday gifts in 2023 .In other words, Americans are willing to make an exception to their frugality for the sake of the holiday season, likely because they are not paying out ofpocket for these gifts.
Nearly 1 in 4 Americans are still in debt from last year’s holiday shopping, and nearly 1 in 5 said they planned to apply for a new credit card this year to help with holiday shopping .This shows that this year’s holiday shopping has contributed to a much larger issue: credit card debt.
As of Q3 2023, overall credit card debt in the U.S. reached a record high of $1.08 trillion, and 9.4% of this debt was at least 90 days delinquent, which is the highest since 2011 .The average annual interest rate on that balance is 22.8%, up from 16.3% a year ago.
“Buy now, pay later” options like Klarna and Afterpay, which allow consumers to pay for their purchases via a multi-week installment plan, also saw record-high usage this holiday shopping season. On Cyber Monday, these purchases hit an all-time high of $940 million, up 42.5% from a year ago, according to Adobe Analytics .This means that Americans will still be paying for these gifts in the coming weeks, which will affect how much these consumers are able to spend on other items.
Overall, while holiday spending is capable of stimulatingthe economy, the unique circumstances surrounding credit card debt and consumer spending habits in the U.S. will likely lead to more volatility in the year to come.
Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.
FRBNY Consumer Credit Panel/Equifax. https://www.newyorkfed.org/microeconomics/hhdc.html.