As the busiest spending season of the year approaches, consumers are giving some mixed signals on how good they feel about their own finances heading into the holidays.
Nearly two-thirds of Americans say they are living paycheck to paycheck, according to a new report from LendingClub
and PYMNTS. That number is pretty much unchanged from last year — but the proportion of high-income consumers who say they’re counting on payday has ticked upward since 2022, and 44% of the survey’s respondents said they have less capacity to save than last year.
Another recent survey from Bankrate showed that more than three quarters of Americans are planning to modify their holiday travel plans this year to save on costs, by staying at home or opting for road trips instead of flights.
“I think the discontent consumers are feeling is a reflection of the squeeze that many household budgets are carrying,” said Greg McBride, Bankrate’s chief financial analyst. “People are spending more because things cost more, not because they’re getting more.”
“‘People are spending more because things cost more, not because they’re getting more.’”
The holiday season can be one of the busiest for the economy, as Americans splurge on gifts, entertainment and travel during the final months of the year. Consumer spending has already been remarkably robust in 2023, fueling better-than-expected growth across the economy in the third quarter.
But conflicting messages from consumers themselves are making it difficult to tell whether their wallets will start to show cracks soon — or if worries about higher costs and hard times ahead will do little to curb another spending spree in November and December.
“Spending over the summer was a nice blip. It doesn’t seem to be sustainable,” Connel Fullenkamp, an economist at Duke University, told MarketWatch. “The reports that are coming in more recently start to indicate the problems beneath the surface.”
Is strong consumer spending coming at a cost?
For as much as they’re spending, Americans are still uneasy about the state of the economy. Consumer confidence fell to a 5-month low on Tuesday, primarily due to growing concerns about inflation, rising interest rates and war in the Middle East.
That may be affecting some consumers’ holiday shopping plans. Six in 10 people say they are cutting back on gifts for close family and friends and 69% say they are scaling back on gifts for extended family and friends, according to a survey from Accenture.
But others indicated they’ll be spending more this season. A new report from TransUnion
said nearly three in 10 people (29%) are planning to spend more on the holidays this year. 16% said they would spend less.
Just over half of polled Americans, 51%, said they would spend at least $500 on holiday shopping, according to the survey from the consumer credit reporting company. That’s up from 46% one year earlier.
Households have shakier finances headed into the end of 2023. Nearly a third of Americans have less money saved for an emergency than they did at the start of the year, according to another October survey from Bankrate. The decline in households’ ability to save has some economists wondering how long consumers will be able to keep up their brisk spending.
Their past-due bills are stacking up, too. Early-stage loan delinquencies climbed in September. And credit-card balances have grown: Americans owe a record $1 trillion in credit-card debt, according to an August report from the Federal Reserve Bank of New York.
The job market is still strong, and that’s giving some consumers the confidence to let go of their cash. But the mixed messages from American households may not get less murky anytime soon, McBride noted — especially because the holidays can create plenty of pressure to spend.
“If there’s one time of year where people spend money and worry about it later, it’s the holidays,” he said. “Even households feeling strain may have every intention of scaling back — but when you add it up at the end of December, that wasn’t the case.”
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