Despite concern over the economy and their finances, consumers did not cut back on holiday spending as much as they anticipated, a welcome sign for retailers. The Monitor’s findings were reflected in the National Retail Federation’s report showing an increase in holiday sales from last year. In the weeks leading up to Christmas, 64 percent of consumers said they planned on spending less on gifts. But when asked after Christmas if they spent more or less on gifts this year, only 51 percent said they spent less.
Middle-Income Consumers Show Biggest Increase in Actual Versus Planned Holiday Spending
A big driver in the increase in holiday sales may have come from middle-income consumers ($40k-$75k). Heading into Christmas, only 6 percent of middle-income consumers planned on spending more on holiday gifts. But after Christmas, 18 percent said they actually spent more, a 12-point increase. Twenty-two percent of upper-income consumers ($75k or more) spent more on gifts, a 9-point increase, and only 11 percent of lower-income consumers (under $40k) spent more on gifts, a 1-point decrease between anticipated and actual holiday spending.
“Concern over the economy and personal finances did not appear to dampen consumers’ holiday spirit,” said Julie Loeger, senior vice president of brand and product management for Discover. “They gave retailers a much needed boost in December, which hopefully will make January a little easier to bear, since consumers usually reduce their spending after the holidays.”
December’s Monitor showed consumers were planning to do just that, with only 20 percent expecting to spend more in the month ahead, the same number reported in December 2008. A majority of consumers also plan to cut discretionary spending in all categories surveyed by the Monitor, a trend that hasn’t changed since September. There was a 2-point increase to 10 percent in the number of consumers planning to save and invest more.
Monitor-Low 43% Have Money Left Over After Paying Monthly Bills
While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October’s previous low of 44 percent.
Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.
Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.
Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances
Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.
Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November. Lower-income consumers feeling their finances were getting worse actually dropped 2 points to 58 percent and 35 percent of upper-income consumers felt their finances were deteriorating, unchanged from November.
“Budgets for many consumers are tight, especially during the holidays,” said Loeger. “With middle-income consumers increasing their spending the most during the holidays, it is no surprise that they expect to have less money left over and are growing more concerned about their finances.”
