Will shoppers really spend more this holiday season than they did last year? It depends on whom you ask.
By most measures, Americans are feeling good about the economy. A monthly gauge of consumer confidence is at a 17-year high. The unemployment rate is at a 17-year low. The stock market continues to hit all-time peaks, while gas remains relatively cheap.
That optimism is expected to help boost holiday shopping sales by as much as 4% this year, according to data from the National Retail Federation. The trade group projects Americans will spend a record $682 billion this year.
But there are signs that the optimism may be limited to high-income Americans. Data show that lower-income households are likely to pull back on holiday spending this year and, in many cases, that their economic outlook isn’t as rosy as it was earlier this year. Wages have remained largely stagnant, particularly in lower-paying jobs, and many are on edge over news reports suggesting changing tax policies will disproportionately hurt lower- and middle-income families, according to Doug Hermanson, an economist for the consultancy Kantar Retail. Proposed government cuts to food stamps and other supplemental programs also are expected to burden lower-income families.
“We’re starting to see a widening bifurcation,” Hermanson said. “When you look at where the big spending is coming from — home improvements, for example — it’s very wealth-driven. Spending plans are largely unchanged overall, and that’s particularly the case among middle- and low-income households.”
Families with household incomes of less than $60,000 are likely to cut spending on gifts by 8% this year, according to PwC. That’s in stark contrast to wealthier households, where shoppers plan to boost spending on gifts by 3%, to $822 per person.
Any growth in holiday spending, the professional services firm said, will be “driven mainly by high-income consumers who’ve seen income gains; most other consumers, while optimistic, are coping with stagnant wages.”
“Households are spending a greater share of their take-home pay while saving less,” the PwC report said. “Absent wage growth, consumer optimism alone may not bolster holiday spending. Eventually households need to make more money or they will have to rein in spending.”
And even if wealthier Americans are willing to spend, that may not translate to higher sales for many retailers, said Natalie Kotlyar, head of the retail practice at professional services firm BDO.
Amazon.com and Walmart are widely expected to be the big winners of the holiday season, analysts said, while many others — department stores and big-box chains among them — are in for more of a mixed bag.
Target last week warned that holiday sales may not be as robust as the company had originally hoped. Toymakers such as Hasbro and Jakks Pacific already have warned that holiday sales may be disappointing following Toys R Us’ decision to file for bankruptcy protection in September. And if the past two years are any guide, it could be a rocky quarter for such companies as Macy’s, Kohl’s, Nordstrom, J.C. Penney and Sears, all of which reported declining sales during the last three months of 2016.
“Even if people are feeling richer these days, there is a conservative confidence about the economy,” said Kotlyar said. “Consumers are still on a budget.”