U.S. holiday spending set for steepest drop since pandemic, PwC survey shows

A recent PwC survey projects U.S. consumer holiday spending will decline 5.3% to an average of $1,552 per person, marking the steepest drop since 2020, as economic uncertainty and inflation prompt 84% of consumers, particularly Gen Z, to curb discretionary purchases. This significant pullback, especially in gifts, apparel, and big-ticket items, signals a challenging and deliberate holiday shopping season for retailers, reflected in the mixed earnings outlooks from major players.

Analysis

A recent PwC survey indicates a significant contraction in U.S. consumer spending for the upcoming holiday season, with a projected 5.3% year-over-year decline to an average of $1,552 per person. This represents the most substantial pullback since 2020 and is driven by broad economic uncertainty and persistent inflation, with 84% of consumers planning to reduce expenditures. The impact is most pronounced in discretionary categories, as spending on gifts is forecast to fall 11% and the Gen Z demographic plans to decrease its budget by a notable 23%. This challenging consumer environment is creating a clear divergence among major retailers. While Target (TGT), Best Buy (BBY), and Home Depot (HD) have maintained their annual forecasts, Walmart (WMT) and Abercrombie & Fitch (ANF) have raised their outlooks, suggesting they are better positioned to capture value-oriented shoppers or specific market segments. Conversely, Mattel (MAT) has cut its forecast, signaling direct exposure to headwinds in discretionary gift-giving. A key caveat is that the survey was conducted in June and July, and an easing of tariff-related uncertainty since then could potentially alter actual spending behavior.

Key Decisions for Investors

• Given the projected 5.3% decline in holiday spending and strongly negative consumer sentiment, investors should adopt a cautious stance on the broader consumer discretionary sector.
• Focus on the clear divergence in corporate guidance, potentially favoring companies that have raised forecasts like Walmart (WMT) and Abercrombie & Fitch (ANF) over those with negative outlooks such as Mattel (MAT).
• Closely scrutinize companies with high exposure to the Gen Z demographic, as this group's planned 23% budget reduction poses a significant risk to youth-focused brands.
• Monitor near-term inflation and consumer confidence reports, as any positive shifts could moderate the survey's pessimistic outlook and present tactical opportunities in undervalued retail names.