Holiday shoppers plan first spending pullback since 2020, PwC report says

Americans plan to reduce holiday spending by 5% this year, marking the first decline since 2020, according to PwC's 2025 Holiday Outlook. This projected pullback, driven by rising costs and tariff concerns, will see average spending fall to $1,552, with gift spending specifically dropping 11% to $721, signaling a significant warning for the retail sector as consumers prioritize essentials. While higher tariffs are increasingly being passed on to consumers, recent legal challenges to trade policies introduce uncertainty regarding future pricing dynamics.

Analysis

PwC's 2025 Holiday Outlook signals a significant headwind for the U.S. retail sector, with projected consumer holiday spending set to decline by 5% year-over-year—the first such contraction since 2020. This pullback is driven by persistent cost pressures and tariff concerns, leading to an anticipated drop in average spending from $1,638 to $1,552. The impact is most acute in discretionary categories, as gift-specific budgets are forecast to fall by a substantial 11% to $721, indicating a consumer pivot towards essentials. The report highlights that retailers have nearly exhausted pre-tariff inventory, meaning higher costs will increasingly be passed to consumers. A notable generational divergence exists, with Gen Z planning a sharp 23% spending reduction, while Baby Boomers and Gen X intend to increase spending by 5% and 2% respectively. This suggests differentiated performance across retail segments. However, the outlook is subject to considerable uncertainty following a recent court ruling that declared key Trump-era trade policies illegal, potentially altering the tariff landscape and its ultimate effect on holiday pricing.

Key Decisions for Investors

• Investors should adopt a cautious stance on the consumer discretionary sector, particularly for retailers heavily reliant on holiday gift sales, given the projected 11% decline in this specific category.
• Consider implementing a pairs trade strategy by underweighting or shorting retailers with heavy exposure to Gen Z consumers, who plan a 23% spending cut, while overweighting companies that cater to the more resilient Baby Boomer and Gen X demographics.
• Closely monitor legal and policy developments regarding U.S. tariffs, as any reversal or reduction following the recent court ruling could serve as a significant catalyst, potentially alleviating price pressures and improving consumer spending forecasts.