US holiday spending set for steepest drop since pandemic, PwC survey shows

A PwC survey projects U.S. holiday spending will see its steepest decline since the pandemic, falling 5.3% to an average of $1,552 per person, primarily due to economic uncertainty and inflation. This cautious consumer sentiment, particularly among Gen Z whose budgets are expected to shrink by 23% and gift spending by 11%, signals significant demand uncertainty for major retailers heading into the crucial holiday season.

Analysis

A PwC survey signals a significant contraction in U.S. consumer holiday spending, with a projected 5.3% decline to an average of $1,552 per person, marking the most substantial drop since 2020. This pullback is driven by broad economic uncertainty and inflationary pressures, with 84% of consumers anticipating spending cuts over the next six months, particularly on discretionary categories like apparel and big-ticket items. The data reveals a sharp 11% expected decrease in gift spending and a notable 23% budget reduction among the Gen Z demographic, indicating a shift towards more deliberate purchasing. This environment creates a bifurcated outlook for the retail sector. While Walmart and Abercrombie & Fitch have raised their annual forecasts, suggesting resilience or successful market positioning, Mattel has cut its outlook, directly aligning with the anticipated weakness in gift-related categories. Other major retailers such as Target, Best Buy, and Home Depot have maintained their forecasts, reflecting a cautious but stable stance amidst uncertain consumer demand heading into the critical holiday season.

Key Decisions for Investors

• Investors should exercise caution on the consumer discretionary sector, given the survey's forecast of a 5.3% drop in holiday spending and a sharp 11% decline in the crucial gift category.
• Consider favoring retailers like Walmart (WMT) and Abercrombie & Fitch (ANF) that have raised guidance, suggesting they are navigating the downturn more effectively than peers like Mattel (MAT), which has issued a forecast cut.
• Closely monitor companies with high exposure to the Gen Z demographic, as this group's projected 23% budget contraction presents a significant headwind for youth-focused brands.
• Acknowledge that the survey data is from June-July and that subsequent easing of tariff uncertainty could moderate the negative trend, making upcoming retail sales data crucial for confirming the outlook before adjusting positions.