Deloitte: U.S. Consumers Have Worst Economic Outlook Since 1997

Deloitte's 2025 Holiday Retail Survey indicates a challenging outlook, with U.S. consumers planning to reduce holiday spending by 10% to an average of $1,595, reflecting the worst economic sentiment since 1997 and widespread recession concerns. The report forecasts retail sales growth of only 2.9%-3.4%, the weakest since the pandemic, as all income groups, particularly Gen Z (-34%) and Millennials (-13%), prioritize value-seeking behaviors and increased digital tool usage. This signals a highly promotional and competitive holiday season, favoring retailers that can offer significant value and cater to budget-conscious shoppers, especially within big-box and online channels.

Analysis

Deloitte's 2025 Holiday Retail Survey reveals a strongly negative consumer outlook, with U.S. consumers planning a 10% year-over-year reduction in holiday spending to an average of $1,595. This reflects the worst economic sentiment since 1997, as 57% of respondents expect economic weakening in 2026 and 56% fear a near-term recession. Consequently, Deloitte forecasts a modest 2.9% to 3.4% retail sales growth for the holiday period, marking the weakest expansion since the pandemic.

The prevailing economic uncertainty is driving significant shifts in consumer behavior, characterized by an aggressive pursuit of value. All income groups, including high-income earners, plan to reduce retail purchases, while Gen Z and Millennials anticipate substantial spending cuts of 34% and 13% respectively. Consumers are actively employing multiple value-seeking strategies, such as shopping promotional weeks (75%) and trading down on brands/retailers (77%).

This environment necessitates a strategic response from retailers, focusing on value propositions beyond just the lowest price. Shoppers are gravitating towards big-box (39%) and online retailers (36%) for value, with 56% of gifts expected to be purchased online. The extended shopping window, with a peak in late November to early December and 70% planning Thanksgiving week shopping, underscores the importance of sustained promotional efforts and digital engagement, including increased use of GenAI.

Key Decisions for Investors

• Re-evaluate exposure to discretionary retail, especially those targeting younger demographics or relying on full-price sales, given projected spending cuts and value-seeking behaviors.
• Consider overweighting big-box retailers and online value platforms well-positioned to capture budget-conscious consumers through aggressive promotional strategies and digital engagement.
• Monitor companies with robust e-commerce capabilities and those offering experiential gifts, as these segments demonstrate relative resilience and shifting consumer preferences.
• Assess retailers' inventory management and promotional flexibility, as the extended shopping window and consumer demand for deals will likely intensify competitive pricing pressures.