Surging inflation, rising interest rates, stock and real estate declines, sagging confidence and other challenges have made for a tough economic backdrop this year, with recession warning signs still flashing for 2023.
Even so, consumer spending is holding steady heading into the meat of what could be a robust holiday shopping season, especially around the Phoenix area.
U.S. retail sales for November and December are projected to rise between 6% and 8%, according to the National Retail Federation. That wouldn't match last year's 13.5% surge after a shutdown-constrained 2020, but it would still exceed the average annual holiday-spending increase of 4.9% over the past 10 years.
It also would represent the 14th straight year of holiday sales increases after a dip in recession-marred 2008.
"Despite record levels of inflation, rising interest rates and low levels of confidence, consumers have been steadfast in their spending," said Jack Kleinhenz, the retail federation's chief economist.
Stores around metro Phoenix could do a bit better this holiday season, thanks to solid job growth, rising incomes and steady in-migration here. That translates to "shoppers who have, and want to spend, money,” said John Reva, a vice president in Phoenix for commercial real estate management company JLL.
Higher-performing retail corridors include Scottsdale, north Phoenix and the East Valley, he said.
Not all consumers are likely to spend big this season, however, with inflation pinching lower-income households. About 42% of respondents plan to spend about the same as last year, according to a survey by professional-services company Accenture, while 36% plan to spend more and 22%, less.
A lot of the people who plan to spend more say they'll do so because inflation has pushed up the prices of many goods and services, not because they want to.
“It’s not my favorite thing to see prices go up every year, but I think we’re comfortable enough to say that it hasn’t bothered us very much,” said Greg O’Donahue, a 50-year-old audiobook voice actor, as he was shopping in Glendale recently with his wife, Melanie, who works at the Mayo Clinic.
“We like shopping, even though prices are rising,” she added.
Consumers plan to spend about $833 on average for gifts along with holiday items such as decorations and food. That estimate excludes sales of vehicles and gasoline as well as restaurant purchases and other travel outlays, according to the National Retail Federation survey.
Consumers have been starting their holiday shopping earlier in recent years to spread out spending and avoid some of the stress. That also has helped retailers cope with labor shortfalls. The federation predicts retailers will hire between 450,000 and 600,000 seasonal workers this year. That would mark a pronounced drop from 670,000 seasonal hires in 2021.
Nearly all retail executives polled by Accenture said they have worked hard to attract and lure workers by offering enticements such as new-hire and retention bonuses as well as by adjusting schedules.
Tight spending for many people
While the top-line holiday sales projections are promising, higher-income households will carry the load, with many others facing a constrained holiday season. Roughly two in three adults plan to cap their spending on gifts at $500 this year, and another 14% don't plan to spend anything on gifts, according to a survey of 1,000 adults conducted by Achieve, a debt-negotiation company formerly known as Freedom Financial with a large operation in Tempe.
JLL, the real estate management company, expects to see a marked contrast between what higher and lower-income consumers spend, and on which items. People with incomes below $50,000 are cutting budgets, looking for sales, favoring mass-merchandise retailers and buying just one or two gift cards, the company said, based on a September survey of more than 1,000 consumers.
By contrast, the much smaller number of people earning more than $150,000 will dine out and travel more this holiday season, favor locally owned stores and buy five or more gift cards on average.
About 50% of consumers earning less than $50,000 said they are cutting their holiday budgets significantly, compared with 24% of those earning $150,000 or more, according to the JLL study.
The company's survey identified Amazon, Walmart and Target, in order, to be the top holiday shopping destinations, followed by Kohl's, Best Buy and Macy's. Toys and games will top all gift categories, followed by clothing, mobile devices, home furnishings and food, according to the survey.
"Retailers that have been able to establish an effective online platform that complements physical stores are doing the best in metro Phoenix and across the U.S.," Reva said.
Do shoppers really get the best prices on or around Black Friday? About half of the people responding to a survey commissioned by Revolut, a finance/transactions app, said they believe brands inflate their prices prior to Black Friday so that consumers think they’re getting a better deal than they really are. However, many of the respondents said they consider this to be a normal practice and aren’t annoyed by it, the survey indicated.
The inflation impact
One difference with holiday shopping this time around, compared with past years, is the emergence of substantially higher inflation affecting a broad swath of consumer goods and services – no more so than in metro Phoenix, which has been leading all other big cities for price increases. The most recent numbers showed U.S. inflation at 7.7% over the 12 months through October and Phoenix-area inflation at 12.1%.
It could be a factor for many people this holiday season.
Jim Hughett remembers working at a gas station while in college during the 1950s when gasoline cost about 40 cents a gallon, or roughly one-tenth the current price. His wife, Barb, recalls a pound of ground beef selling for about 60 cents.
“The value of the dollar has changed so much over the years, so we are not really holiday shoppers,” Jim said. Barb attributes the recent spike to “political nonsense” and the Russian invasion of Ukraine.
Sabrina Jiles said she likes to do a lot of online holiday shopping, mainly for shoes and cosmetics.
“I don’t remember things being as expensive a few years ago as they are now, even with all the discounts you get when you shop online,” she said.
Jiles, a sports-journalism major at Arizona State University, considers herself fortunate to be a full-time college student with a family to lean on.
“If it was just me and I was working in downtown Phoenix, things would get way more expensive,” she said.
Holiday entertainment and cheer
Many consumers, especially more affluent ones, plan to engage in holiday festivities by dining out, frequenting entertainment venues and attending parties.
Joel Bachkoff, owner of CB Live, the Improv and Copper Blues, is expecting a strong holiday season at his entertainment venues.
"People want to go out, eat, drink, have fun and have a great holiday season," he said.
Reva said some mall operators are hosting concerts, light shows and other holiday activities, while more stores have been bringing back samples of cosmetics, food and other products that were missed during the worst of the COVID-19 pandemic.
People who venture forth to stores and malls should remember a few safety tips. Among them: About one-fifth of all auto accidents happen in parking lots, according to State Farm, quoting statistics from the National Safety Council.
Further growth of online sales
Many people who order gifts online complain about expensive, slow and even late deliveries. About 40% of online shoppers in the Accenture survey said they expect free and fast deliveries but don't always get them.
That said, online holiday sales are projected to continue climbing at double-digit rates, as they have in recent years.
The JLL study predicts the busiest day for in-store visits will be Black Friday, Nov. 25, with nearly 40% of survey respondents planning to go in person. Even more, 54%, plan to shop online that day.
About 54% of respondents said they plan to shop online on Cyber Monday, Nov. 28, well above the 26% who plan to venture to stores then.
Anyone shopping online should be alert to scams during the holiday season, as Americans lose billions of dollars in this manner each year.
Amy Maliga, a financial educator with Phoenix-based credit-counseling agency Take Charge America, offers several precautions when shopping online. These include using secure payment methods, checking for website security features (such as the" https" designation at the front of a site’s URL and small lock icons in the browser window) and avoiding shoddy websites with multiple spelling or grammatical errors.
She suggests ignoring emailed confirmation orders for transactions you didn’t place, as these might be phishing attempts designed to induce you to click on included links.
Coping with higher fuel costs
People who plan to drive for the holidays to visit friends or family members will face some of the highest-ever seasonal prices ever for fuel, reports GasBuddy.com. The research service had been projecting a national average around $3.68 a gallon on Thanksgiving Day before recent price declines dropped that to around $3.50.
The previous Thanksgiving weekend record was $3.44 a gallon in 2012. About one in five households plans to hit the road this Thanksgiving weekend, the group said.
Gasoline prices are higher in Maricopa County, having averaged nearly $4.50 a gallon before tapering off in recent days, according to GasBuddy.
While Americans "openly complain about high gas prices, most of us aren't deterred from taking to the highways to observe Thanksgiving," said Patrick De Haan, head of petroleum analysis at GasBuddy.
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This article originally appeared on Arizona Republic: What recession? Healthy holiday retail sales predicted