A worrying trend has emerged among U.S. consumers as we approach the peak holiday shopping season. A recent survey by Deloitte reveals a downbeat outlook on the economy, with most consumers expecting higher prices and a weaker economic climate. This pessimistic mindset is a stark contrast to previous years and could have a significant impact on spending habits during the holidays.
The Economy's Uncertain Future
The survey findings paint a concerning picture. A staggering 57% of consumers anticipate a weaker economy in the year ahead, a significant increase from the 30% who held this view last year. This is the most negative economic outlook since Deloitte began tracking consumer sentiment in 1997.
The reasons for this shift are multifaceted. The latest wave of tariff hikes on imports, initiated by President Donald Trump, has likely contributed to the rising prices consumers expect to face during the holiday season. Additionally, the ongoing inflationary pressures, particularly around housing costs and everyday items, are causing concern among younger generations.
A Generation's Struggle
Gen Z consumers, aged between 18 and 28, are feeling the pinch the most. They plan to spend an average of 34% less this holiday season compared to last year. This generation, early in their careers, is facing uncertainty and instability, which is reflected in their spending plans.
"They're thinking about income, the job market, and the concerns about the economy will only add more pressure," says Brian McCarthy, retail strategy leader at Deloitte. "They haven't had the time to build up their savings or plan for tougher economic times."
Millennials, aged between 29 and 44, are also cutting back, with an expected 13% reduction in spending this holiday season. In contrast, Gen X plans to spend slightly more, while Baby Boomers expect a modest 6% decrease.
Retailers' Cautious Approach
For retailers and brands, these survey results are a cause for concern. The most crucial sales period of the year is approaching, and consumers' spending plans are a key indicator of potential sales. Other holiday forecasts also suggest households expect to spend less, although the appetite for decorating and gift-giving remains strong.
Holiday spending is expected to rise by 4% year-over-year, according to Bain & Co., which is a drop from the 10-year average of 5.2% growth. Online holiday spending is forecast to grow by 5.3% year-over-year, slower than the previous year's increase of 8.7%.
The theme of value-seeking will dominate this holiday season, according to Deloitte's McCarthy. Consumers are actively seeking deals, with a notable increase in the number of U.S. consumers reporting this behavior. Across income groups, seven out of ten respondents are engaging in multiple deal-seeking activities, such as opting for store brands, cooking at home, and buying used cars.
Cutting Back on Extras
As consumers watch their budgets, they plan to reduce spending on holiday-related extras. On average, they intend to cut back on non-gift holiday expenses by 22%, including hosting, clothing, and decor. However, when it comes to gifts, the reduction is less severe, with an average of eight gifts planned compared to nine last year, and a spending increase from $505 to $536.
The holiday season is a crucial time for retailers, and these survey results provide a glimpse into the potential challenges and opportunities ahead. With consumers seeking value and cutting back on extras, retailers must adapt their strategies to meet these changing demands.
What are your thoughts on this shift in consumer behavior? Do you think retailers can adapt to these changing circumstances? Share your insights and predictions in the comments below!
