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

A recent PricewaterhouseCoopers survey projects U.S. holiday spending to experience its steepest decline since 2020, with consumers planning to spend 5.3% less on average, or $1,552 per person, primarily due to economic uncertainty and inflation. This significant pullback, particularly pronounced among Gen Z, signals a challenging demand environment for retailers heading into the crucial holiday season, impacting sales across apparel, big-ticket items, and gifts.

Analysis

A PricewaterhouseCoopers survey signals a significant contraction in U.S. consumer holiday spending, with the projected 5.3% year-over-year decline to an average of $1,552 per person marking the steepest drop since the 2020 pandemic. This pullback is broad-based, with 84% of consumers expecting to curb spending due to economic uncertainty and inflation. The most impacted categories are discretionary, with gift spending forecast to fall 11%. A key driver is a sharp reversal among younger consumers, as Gen Z budgets are expected to shrink by 23%. This challenging macro environment is creating a bifurcated retail landscape: while Mattel cut its forecast, aligning with weak gift demand, value-oriented Walmart and brand-resilient Abercrombie & Fitch raised their outlooks. Meanwhile, major retailers like Target, Best Buy, and Home Depot have held guidance steady, indicating they may have already priced in this consumer caution, creating a clear divergence in corporate performance heading into the critical fourth quarter.

Key Decisions for Investors

• Investors should adopt a cautious stance towards the consumer discretionary sector, particularly for companies heavily reliant on gift-giving and big-ticket items, given the survey's projected 11% decline in gift spending.
• Consider overweighting retailers demonstrating resilience and market share gains, such as Walmart and Abercrombie & Fitch, which have raised guidance despite the negative consumer sentiment, while potentially underweighting those like Mattel that have issued cuts.
• Monitor upcoming corporate earnings for commentary on inventory levels and gross margins to identify which retailers are effectively managing the shift towards more deliberate, value-conscious consumer behavior.
• Re-evaluate exposure to youth-focused brands given the pronounced 23% planned spending cut by Gen Z, as this demographic's pullback could disproportionately impact companies that have not secured strong brand loyalty or a clear value proposition.