Americans are nervous about the economy. They are troubled by the higher prices from tariffs. They are wary of a fizzling job market.
They are poised to shell out during the holiday shopping season anyway.
Economists are predicting a healthy dose of consumer spending in the last weeks of the year, extending a streak of surprising resilience. Although there is some evidence that people with lower incomes are under rising strain from persistent inflation and weaker hiring, economists say many consumers have enough of a buffer to buy gifts and other holiday items.
Wealthier households in particular, fueled by a high-flying stock market, are expected to buy freely, offsetting slower spending down the income spectrum. Surveys and other data suggest consumers broadly intend to spend the same or more on holiday shopping compared with last year.
“We do expect a pretty solid holiday shopping season,” said Michelle Meyer, the chief economist at Mastercard, which estimated that holiday spending would rise 3.6 percent from last year. “It looks like the momentum is heading in that right direction.”
Nick Hennessy, 34, makes $65,000 a year as a manager at an Amazon print-on-demand facility. His salary is enough to rent a small apartment in an old building in Portland, Ore., and he pays off his credit card bills and contributes a modest amount to his retirement fund every month.
At the same time, he must make a $227 monthly student loan payment that the federal government had allowed him to delay for a time. His weekly grocery bills, including premade lunches from Trader Joe’s, as well as milk, yogurt, cereal, eggs and fruit, have risen to $75 from about $55.
“I weigh less, so I know I’m not eating more,” he said.
Those additional expenses have stretched his finances. Still, he said he planned to spend about $500 this year on holiday gifts, for his girlfriend and his parents. That is roughly the same amount as last year, he said, and more than he spent in years when he was paid by the hour.
“I really do have more income than I had before,” he said. “I can find more room in the budget for those little things.”
The holiday shopping season, which now stretches through November and December, is arriving as consumers’ confidence in the trajectory of the economy has sagged, with many citing the pain of higher prices and the prospect of falling incomes.
That gloom has not translated to a broad decrease in spending. Retail sales rose 0.2 percent in September from the previous month, the Commerce Department reported on Tuesday.
Much of the spending strength has been driven by affluent consumers, who have increased their purchases amid a soaring stock market that has made them richer. The top 10 percent of households are powering nearly half of all consumer spending, according to an estimate from Moody’s Analytics.
Lower-income consumers have been less insulated from rising prices and slower job growth. Because they spend a larger share of their incomes on cheaper imported goods, they are more exposed to the pinch of tariffs. A surge in wage growth for the lowest-paid workers in the aftermath of the Covid-19 pandemic has faded, draining their spending power.
Many have cut back on discretionary purchases and reoriented their spending toward necessities like groceries, gas and rent.
“We do already see some signs, from various kinds of retailers and companies, that people are tightening their belts,” said Joanne Hsu, an economist and the director of consumer surveys at the University of Michigan.
That dynamic is creating a kind of split screen among retailers that could become more pronounced during the holidays.
Walmart told analysts last week, for instance, that lower-income customers were pulling back even as those with higher incomes flocked to its stores.
“We continue to benefit from higher-income families choosing to shop with us more often,” said Doug McMillon, the chief executive of Walmart, though he also noted that “lower-income families have been under additional pressure of late.”
Patches of deeper distress are emerging among consumers. The unemployment rate for young people and Black workers has surged in recent months. And hundreds of thousands of jobs have been affected by federal spending cuts.
Jennifer Plante, 44, from Essex Junction, Vt., said she had made peace with the idea that “gifts are probably not happening this year, which is a bummer.”
After losing her job this year at a government contractor for international development, she took on part-time work at a bakery that paid $15 an hour. When the government shut down, her husband, a federal employee, was furloughed.
Last month, she got a job working on an exchange program at a local, nongovernmental organization with a $68,000 salary, about half of what she was making before. To pay their monthly bills, she and her husband have dipped into their savings. They have canceled home improvement projects, including buying a heat pump, and cut back on meals out. Once a week, she said, they treat themselves to a yogurt from a local creamery.
“Right now, we’re hardly spending anything,” she said.
But for the most part, even many lower-income consumers are on healthy enough financial footing to spend during the holidays, economists say.
The credit card delinquency rate rose in the third quarter, but it is lower than it was in the middle of last year, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit. Bank of America said that households across income levels held more deposits in October than they did on average in 2019 and that it did not appear that they were dipping into their savings too much.
A recent survey of Americans making less than $75,000 a year from the Consumer Collective, an advisory firm, found that nearly all planned to buy gifts for the holidays.
Many said they aimed to spend less than $500, and a quarter said they would spend between $100 and $300. That they intend to buy at all underscores the notion that many consumers consider holiday spending a necessity.
After Nancy Cooley, 28, lost her job at a bank branch in Atlanta last November, her situation spiraled.
Her car broke down, and she did not have enough money to buy a new one. She was evicted from her apartment and had to give up her cat. When she was unable to pay her auto loan or credit card bill, her car was repossessed, and she declared bankruptcy. She is living with friends and working as a claims associate for an insurance company making roughly $21 an hour.
When her friends recently proposed getting matching Christmas pajamas, the idea of buying such an elective item made her anxious, she said. But that wasn’t going to stop her from paying the $20 — or spending money on other holiday gifts.
“The only way I wouldn’t do it is if I really didn’t have it,” she said.
Sydney Ember is a Times business reporter, covering the U.S. economy and the labor market.
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