Holiday spending as a gauge of consumer financial health

By Russell Price, Chief Economist, Ameriprise Financial

Person's hand carrying holiday shopping bags and walking past stores.

Key Points

  • Given consumers are the primary source of support for the U.S. economy, holiday spending rates can provide sound insight into their financial health.
  • Forecasts indicate the likelihood of solid year-over-year increases in holiday spending.
  • Consumer finances appear to be in good shape and capable of maintaining support for continued economic expansion — even against the possibility of adverse developments in trade and global growth.

The holiday shopping season of November through December has historically been a key barometer of consumer financial health. The period has long been the busiest time of the year for retailers; and given the importance of the consumer in the U.S. economy, it naturally carries implications for broader economic prospects.

The shopping season, however, has lost some of its importance over the years as the internet has reshaped the timing of consumer spending. Increasingly, we now embrace instant gratification in our shopping habits throughout the year. Twenty-five years ago (1994), general merchandise stores saw 24.8% of their annual sales in November and December, according to the U.S. Commerce Department. In 2018, the final two months of the year accounted for just 20.4% of annual sales.1  


Spending on non-necessities can be telling

Despite the moderation in year-end spending, economists and industry analysts still closely watch holiday season sales. It remains a dominant period for spending on non-necessities and gifts, items that can be more telling of how people feel about their personal finances. This year, that sentiment may be very important.

Consumers are always vital to U.S. economic prospects given they account for 70% of total economic activity.2 Their role has taken on additional significance recently as other segments of the economy have come under pressure. Business spending has stagnated due to trade uncertainties; manufacturing output has slowed to a crawl; and demand for U.S. exports is down due to slower global growth and a more expensive U.S. dollar. 


It looks like it may be a good season

Fortunately, we believe consumers are still in a solid position to continue their economic support, and holiday season sales forecasts appear to concur. The National Retail Federation (NRF) projects sales to be 3.8% - 4.2% above year-ago levels versus a five-year average of 3.7%.3 The consultancy firm Deloitte, meanwhile, projects sales to rise a solid 4.5% to 5%.4

Consumers have good reason to spend at a healthy pace. The job market is strong, as reflected in the 3.6% unemployment rate5 (a 50-year low), incomes are growing at a solid pace (averaging 4.7% this year through September6) and debt burdens are at healthy levels relative to consumer incomes. The personal savings rate, which the Commerce Department publishes, has averaged more than 8% in 2019 through September, a level not seen consistently since the early 1990s.7

Still, consumer activity remains susceptible to adverse geopolitical developments or fears related to the broader economic outlook. Such risks are clearly elevated in the current environment, but so far consumers have been dealing with them quite well.


Consider reviewing your portfolio

We expect holiday shopping season results to provide a snapshot of consumer attitudes over the near-term, but consumer financial health will remain a key consideration well beyond this period. The global economy has slowed, and trade disputes and heightened geopolitical tensions have resulted in increased recession risks. 

We believe current financial market valuations fairly reflect these uncertainties, but there is always a risk of adverse developments. Year-end is a good time to talk to your Ameriprise financial advisor to make sure your portfolio is in-line with your risk tolerances, yet still focused on achieving your long-term goals.