Chad L. from Virginia Beach, VA asks: Hello Mitch, I’ve read in a few places that holiday shopping is expected to be strong this year, but isn’t it also true that people are spending more because prices are higher? In other words, is higher spending just tied to inflation, and therefore not as meaningful?
Mitch’s Response:
Thank you for emailing your question– it’s a really smart take on the holiday spending data.
The short answer is that numbers are actually up across the board – wages are higher, spending is higher, and inflation is higher as well. Every person in the economy’s experience is different. But on a macro level, the rate of increase across the three metrics signals that inflation is not disproportionately resulting in higher holiday shopping figures. Inflation is contributing, but the strong year-over-year numbers are also a result of more engaged consumers. Despite all the challenges brought by the pandemic, labor shortages, and some inventory issues, consumers have increased spending by about 4.4% on average over the last five years.1
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RetailNext, a research firm that tracks in-store shoppers, said that foot traffic in stores was up 61% this Black Friday compared to 2020, when many consumers were still skittish about the spread of Covid-19. Interestingly, consumer enthusiasm to get out and shop did not affect online sales all that much – e-commerce on the holiday weekend posted $9 billion in 2020 to $8.9 billion in 2021.
To be fair, Black Friday store shopping was still down about 25% from 2019 levels, before the pandemic struck. But overall, the National Retail Federation expects that U.S. November-December retail sales will jump by approximately 10% from a year ago, bringing the total to as much as $850 billion or more. Compare that 10% figure to inflation – according to the Labor Department, the consumer price index (which roughly measures what consumers spend on a basket of goods and services) jumped by 6.2% in October from the previous year.
Consumers generally seem to be aware (and put off by) inflationary pressures, but it is not deterring them from getting out and spending. According to a survey conducted by Deloitte, 70% of people started holiday shopping before Halloween, likely because they were worried about inventory/supply chain problems. That’s up from 66% in 2020 and 61% in 2019. Deloitte also asked consumers if they would be spending more this holiday season, to which about one-third said yes. Most of those consumers were spending more because their financial situation had improved – not necessarily because of inflation.
At the end of the day, it is not a perfect science determining whether inflation is the primary driver of higher holiday spending, or whether it is consumers’ strong financial position pushing the figures higher. Either way, spending is up and major retailers are expecting to post record profits – which is ultimately what matters most to investors, in my view.
Holiday spending and inflation will affect the market – but what does this mean for investors who are preparing for retirement? This is the perfect example of why we cannot predict exactly how these situations will pan out. No matter how carefully you prepare for retirement, life’s unknowns can throw your plans off track.
But you can take steps to prepare yourself and help protect your secure and comfortable retirement.
If you have $500,000 or more to invest, get our free guide, Retirement Uncertainties…and How to Breeze Through Them.3 It provides advice, based on our decades of experience, that we believe can help ensure that your golden years will be comfortable and secure.
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