Shoppers plan to spend less this holiday season, report says

U.S. consumers are projected to reduce holiday spending by 5% to an average of $1,552 per person, marking the first decline in five years, according to PwC's 2025 Holiday Outlook report. This anticipated pullback, driven by persistent inflation and tariff concerns, includes an 11% cut in gift spending, with Gen Z planning a significant 23% reduction. While other demographics show varied spending intentions, the overall shift towards frugality and increased use of AI for planning signals a challenging retail environment and a strategic re-evaluation of consumer discretionary spending.

Analysis

U.S. consumer holiday spending is projected to contract for the first time in five years, with a notable 5% year-over-year decline to an average of $1,552 per person, according to a PwC survey. This pullback is driven by significant macroeconomic pressures, including persistent inflation, tariffs, and a weak job market, with over 50% of consumers explicitly citing price increases as a factor influencing their spending. The shift in consumer behavior is stark, with gift-specific spending expected to drop by 11%. Consumers are actively becoming more price-sensitive, evidenced by 80% planning to seek affordable alternatives and an 11% increase in online searches for discounts. A significant demographic divergence is apparent: Gen Z is leading the retreat with a planned 23% spending cut, a sharp reversal from their 37% increase last year, creating a challenging environment for youth-focused retailers. In contrast, Millennials show resilience with a minor 1% decrease, while Baby Boomers plan to increase spending by 5%. Concurrently, technology is playing a larger role in purchasing decisions, with 68% of consumers likely to use AI for comparing travel options and 15% of younger generations using it for gift ideas, signaling a new channel for retailers to engage a frugal customer base.

Key Decisions for Investors

• Investors should adopt a cautious stance on the broad retail and consumer discretionary sectors, favoring companies with value-oriented business models or strong discount strategies that appeal to the 80% of consumers seeking more affordable alternatives.
• Portfolio exposure should be reviewed based on demographic targeting, as companies heavily reliant on Gen Z face significant headwinds from a 23% spending cut, while those catering to Baby Boomers may see relative outperformance given their planned 5% spending increase.
• Monitor inflation data and tariff-related news closely, as the report indicates these are primary drivers of the negative consumer sentiment; any positive shifts in these areas could present a catalyst for a reversal in spending trends.
• Consider opportunities in technology platforms, particularly in e-commerce and travel, that are effectively integrating AI tools, as their adoption for price comparison and product discovery is growing rapidly among cost-conscious consumers.