Most U.S. consumers expect higher holiday prices and a weaker economy, survey finds

A recent Deloitte survey indicates a significantly pessimistic U.S. consumer outlook for the upcoming holiday season, with 57% expecting economic weakening—the most negative sentiment since 1997—and 77% anticipating higher prices. This sentiment is translating into a planned 10% reduction in overall holiday spending to an average of $1,595, particularly driven by Gen Z and Millennial consumers who expect to cut spending by 34% and 13% respectively due to economic uncertainty and inflationary pressures. While consumers are prioritizing value and cutting non-gift expenses by 22%, they plan a slight increase in gift spending per item, signaling a challenging retail environment characterized by cautious spending and a strong focus on deals, a trend corroborated by other forecasts predicting slower growth.

Analysis

The latest Deloitte survey reveals a significantly pessimistic U.S. consumer outlook, with 57% expecting economic weakening—the most negative sentiment since 1997—and 77% anticipating higher prices. This translates into a planned 10% reduction in overall holiday spending to an average of $1,595, signaling a potential end to the "resilient consumer" trend. This contrasts sharply with the $1,778 planned spending in the year-ago period.

This spending pullback is particularly pronounced among younger demographics, with Gen Z planning a 34% reduction and Millennials a 13% cut, driven by economic uncertainty, job market concerns, and inflationary pressures, especially in housing and groceries. In contrast, Gen X plans a 3% increase, while Baby Boomers expect a 6% decrease, highlighting a generational divergence in spending capacity and confidence.

The retail sector faces a challenging holiday season, corroborated by other forecasts predicting slower growth, such as Bain & Co.'s 4% year-over-year increase and Adobe's 5.3% online growth, both below historical averages. A dominant theme is value-seeking, with 70% of consumers engaging in multiple deal-seeking behaviors and planning a 22% cut in non-gift holiday expenses, while gift spending shows a nuanced shift to fewer but potentially higher-value items ($536 for 8 gifts vs. $505 for 9).

Key Decisions for Investors

• Investors should re-evaluate exposure to discretionary retail, especially brands targeting Gen Z and Millennial consumers, given their significant planned spending cuts and heightened economic uncertainty.
• Monitor companies with high exposure to housing and grocery inflation, as these costs are directly impacting consumer confidence and reducing discretionary spending capacity.
• Consider defensive positioning or opportunities in value-oriented retail segments, as consumers prioritize deal-seeking and cut non-gift expenditures, indicating a shift in purchasing behavior.