Holiday spending is likely to advance at a tepid 0.5% pace as households still reeling from the pandemic pull back on traditional and experiential holiday outlays.
This forecast is optimistic compared to the 4.6% decline in 2008, the last holiday season that took place during a recession. And it is analogous to the 2009 spending season, when purchases advanced 0.2% during the first six months of a modest recovery.
This is shaping up to be the roughest spending season in more than a decade.
Given that the holidays are responsible for roughly 20% of all retail sales each year, this is shaping up to be the roughest spending season in more than a decade.
Despite the attempt by Amazon to pull forward the start of the holiday spending season to mid-October, we anticipate that the pandemic’s drag on the economy will weigh on consumers’ willingness to spend.
Working against a recovery are the loss of $15 billion per week in income supplements because of the policy impasse in Washington, the decline of old habits with respect to holiday shopping and a new wave of coronavirus infections that has dampened consumers’ outlook.
For this reason, we anticipate a traditional November move that favors upscale sites for wealthy shoppers who have not experienced the same disruption as down-market consumers.
We anticipate that the mix of holiday activity, which has been trending toward more experiential spending in recent years, will temporarily migrate back to more traditional spending during this holiday season given the constraints on domestic and global travel.
At the same time, we anticipate a major shift toward online purchases. This will only intensify the significant challenges for mall owners that have defined the last two generations of holiday spending habits.
Low-income households hit hardest
The economic narrative of the pandemic has been a decisively down-market phenomenon. It has hit hardest those households that make below the inflation-adjusted median income of $68,703. As the Federal Reserve has noted, 40% of households making $40,000 or less have experienced the loss of a job or income, and holiday spending among that cohort will almost certainly be uniformly weak.
Compared to a year ago, there are 6.9% fewer individuals working and more than 25 million are on some form of unemployment insurance. This will present a challenge to discount retailers and those that populate what is left of the old retail mall complex.
A different story at the higher end
It has not been the same for the upper two quintiles of income earners. Based on employment and income data, they are well positioned to release pent-up demand during the holiday season.
Those earners have experienced a more modest disruption in their employment — approximately 1% of that cohort has experienced employment and income turmoil. Given the current 14.1% national savings rate, these households are likely to tap that cash, resulting in a more traditional spending season.
This interesting outcome of the pandemic-induced recession is the primary reason for our somewhat optimistic forecast. Absent a significant change in the direction of wealthy consumers, who have cut their spending by 7.9% compared to January and who are mostly responsible for the increase in national savings, there is a chance that holiday spending will have a negative sign on front of the holiday spending number.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
