by Ashley Allen Reade
The most expensive time of the year is winding down and the numbers are in. Retail sales ended up being 7.6% higher for Christmas 2022 than for Christmas 2021. While that sounds like a good sign that Americans spent more, it isn’t because they are more prosperous.
They spent more because everything costs more. Inflation, officially up by 5.5%, has created artificial hope for those who look at the statistics without context.
In general, holiday spending in the United States can vary significantly from year to year and is influenced by a number of factors, including the state of the economy, consumer confidence, and cultural traditions. It is also worth noting that people’s holiday spending habits can vary widely depending on their individual circumstances and priorities.
What did they spend money on?
According to Fox Business:
Americans chose to eat out during the holidays, with restaurant spending up 15.1% over the same time frame in 2021. Clothing rose 4.4%, while in-store sales rose 6.8% and online sales rose 10.6%.
During the holiday season, people in the United States often spend money on gifts for friends and family, decorations for their homes, and travel. They may also spend money on food, parties, and other holiday-related expenses. If the price of these things has increased, so too will the spending of the public.
So why was spending really up?
The real question here is whether or not consumers got more stuff for the additional money or were forced to spend the additional money to get less stuff due to inflation.
CNN Business notes that consumers “spent like crazy” this year:
The Personal Consumption Expenditures price index — the Federal Reserve’s preferred measure of inflation — rose 5.5% in November from a year earlier, the Commerce Department reported Friday.
“Consumers and retailers navigated the season well, displaying resilience amid increasing economic pressures,” Michelle Meyer, North America Chief Economist at the Mastercard Economics Institute, said in a statement.
According to Mastercard, consumers diversified their spending to cope with higher prices and prioritized dining out and other experiences. Restaurant sales grew more than 15% compared to the same period last year.
American shoppers also displayed a growing preference for shopping online, with online sales growing 10.6% year-over-year and ecommerce making up 21.6% of total retail sales, up from 20.9% in 2021.
Inflation isn’t the only negative sign, however.
Putting it on plastic
The numbers are somewhat artificial because it isn’t money that many people spent, but credit. Credit card debt has been escalating as people try to maintain their previous standard of living despite soaring inflation and wages that don’t match it. The Deseret News reported:
…the Federal Reserve Bank of New York released data showing that household debt in the United States rose faster in the third quarter of this year than at any time since 2008. We added $351 billion in overall debt, with higher-interest mortgages leading the way.
But the report said we also added the most credit card debt in 20 years, increasing our collective balances by 15% over this time in 2021. This, at a time when interest rates are topping 19% on those cards, and when you don’t have to Google too hard to find warnings of a possible looming recession.
Experts were couching this news by noting that delinquency rates remain low. Wells Fargo economist Shannon Seery told Deseret News reporter Art Raymond that most households still have enough disposable income to handle a bit more debt. Seery said to expect a 6% increase in holiday spending this year, but most of that will be due to inflation.
This makes it more difficult to get a handle on inflation.
“It is tempting to cheer on the ‘resilience’ of the consumer, but the staying power of spending gives businesses no incentive to forgo price increases, thereby making the task of getting inflation in check more difficult for policymakers,” Seery wrote in a Federal Reserve blog, along with economist Tim Quinlan.
The buy-now-pay-later mindset is not feasible in an economy in which prices keep going up but people’s incomes are not keeping pace.
As usual, it’s the lower-income households that will suffer first and hardest.
Many families making less than $50,000 per year are already having difficulty meeting their minimum payments. Add more purchases to these balances and the strain will catch up with them almost immediately. What’s more, interest rates have also skyrocketed, making those debts increase far more rapidly.
From Yahoo News:
Once flush with additional savings from the pandemic, many consumers have exhausted that excess cash due to ongoing inflationary pressures and are now turning to credit cards to fund their holiday spending.
“Wage growth has been averaging about 5%, but inflation is running around 7%,” said Ted Rossman, senior industry analyst at Bankrate.com and Creditcards.com. “Consumers are upside down, essentially. That’s primarily why sentiment has been so depressed.”
But any gains in savings from the pandemic have been exhausted.
New data from the Bureau of Economic Analysis shows that the U.S. personal savings rate has plummeted to 2.3%. That’s a 17-year low.
“People are also reluctant to scale back their standard of living and haven’t yet adjusted their budgets, so their first impulse is to borrow,” Barrington said…
…Americans are falling deeper into debt. Balances jumped 15% year-over-year in the third quarter. That’s the largest annual increase in more than 20 years.
“We’re back to pre-pandemic levels in terms of credit card balances,” said Rossman. “And those who are carrying balances are carrying them for a longer period of time.”
In fact, among Americans who carry credit card debt from month to month, 60% have been revolving this debt for at least a year, according to CreditCards.com. This is up from 50% last year.
So, folks are still trying to pay off last Christmas, while adding debt from this Christmas. Even if they never spent another penny on those cards, making minimum payments it would take them 5-7 years to pay off credit card debt, all the while paying up interest as high as 23%.
The New Year is not looking bright.
Unless something dramatic happens to turn things around – and I have no idea what that might be – we’re looking at a grim 2023 for many households. We’ll be facing a full-blown recession.
A recession is a period of economic downturn that is characterized by a reduction in economic activity, such as a decrease in Gross Domestic Product (GDP) and an increase in unemployment. Recessions are typically accompanied by a decline in consumer spending and business investment, as well as other economic indicators.
During a recession, it is common for people to experience financial difficulties and may struggle to pay their bills or meet their basic needs. Some people may become unemployed or underemployed, which can lead to an increase in poverty and homelessness. It is also common for people to cut back on non-essential expenses, such as dining out or taking vacations, in order to save money. This, of course, means there’s even less money in the economy at large and there are even more people becoming unemployed as businesses suffer.
In terms of crime, it is difficult to make generalizations about how a recession may affect crime rates. Some studies have found that crime rates may increase during economic downturns, while others have found no correlation or even a decrease in crime during recessions. The relationship between crime and the economy is complex and may be influenced by a variety of factors, including unemployment, the availability of goods, and social and economic policies.
It’s my opinion that we will probably see an increase in property crime – after all, retailers have lost $100 billion to shoplifters since 2021. Alarmingly, much of that was due to organized retail crime such as flash mobs.
Buckle up!
I think that we’re in for a 2023 that makes 2008 and 2009 look easy. That doesn’t mean all is lost. Americans are resilient and we’ve nearly all experienced personal hard times. We need to tap into our preparedness and self-reliance skills to ride out this storm just like we would handle an act of nature.
What do you think about the increase in spending? Is it a good sign or a bad one? What do you see happening with the economy in 2023? Share your thoughts with us in the comments section below.
About Ashley
Ashley Allen Reade is part of a prepping family. She has spent her entire adult life getting prepared for one event or another. She enjoys traveling, gardening, and decorating.