‘Tis The Spending Season

Many cities roll out beautiful decorations at this time of year, but no one does the holidays like New York. I started the week visiting clients there, and the walks between meetings took me past a number of gorgeous window displays. Creative and colorful, they are a magnet that lures shoppers to Midtown.

Retailers will need all the energy they can generate during the coming month. After two very strong holiday seasons, 2023 is likely to be softer; sales gains are expected to be about 3% this year, as compared to 5.7% last year and almost 13% in 2021. A series of forces are at play:

  • Household finances are not as strong. Among the bottom half of the income distribution, excess savings accumulated during the pandemic have dissipated, and the use of credit has increased.
  • As we discussed recently, the American labor market is still strong, but showing signs of softening.
  • While confidence surveys don’t always track with spending behavior, levels of consumer confidence in the United States remain depressed.
  • Spending is still favoring services over goods, by some margin.

personal consumption