Consumers are expected to cut back on discretionary spending this holiday season, hurting retailers, amid persistent inflation and declining savings, according to The Wall Street Journal.

The National Retail Federation anticipates consumer spending to rise around 3% to 4% in November and December, not including inflation, compared to a 5.4% increase that was observed in 2022 and a 5.4% gain in 2021 during the same time frame, according to the WSJ. In an effort to increase sales, many retailers are giving deeper discounts to lure consumers who may be apprehensive about buying products they don’t need, looking to boost their sales on Black Friday, Cyber Monday and the last two weeks of December, when holiday deals typically occur.

“[Shoppers] are saying, ‘Hey, if I am going to spend, it’s going to be during these heavily promoted times,’” Lupine Skelly, a retail research leader at Deloitte, told the WSJ. “We see this as a critical week for retailers.”

To lure more shoppers, top retailer Walmart is offering holiday discounts on twice as many products this season compared to the previous year, according to the WSJ. Additionally, the company is loosening cash for consumers by lowering grocery prices, so shoppers will buy more non-essentials.

Consumer activity is being chilled in part due to rising prices from persistent inflation, which peaked at 9.1% year-over-year in June 2022 and has since remained elevated, rising 3.2% for the year ending in October, far higher than the Federal Reserve’s 2% target. To combat the high inflation, the Fed has raised its federal funds rate to a range of 5.25% and 5.50%, the highest point in 22 years.

To maintain consumer spending levels since the COVID-19 pandemic despite high inflation, average Americans have spent through a substantial portion of their savings, with Americans only holding a cumulative surplus of $687.7 billion, less than the over $1 trillion held earlier this year and far lower than the nearly $6 trillion held in April 2020, according to the Federal Reserve Bank of St. Louis. Consumers spending through their savings has heavily contributed to the positive growth the economy has seen over the last few quarters.

“If someone bought me two giant boxes of diapers instead of a stuffed animal, that would be the best gift ever,” Sarah Heir, a veterinary nurse from North Carolina, told the WSJ.

Will Kessler on November 24, 2023