Video Transcript

Figuring out consumer sentiment and spending patterns during times of multiple headwinds and tailwinds is a challenge to say the least. For over the past two and a half years, our consumer equity research team has done proprietary consumer surveys on at least a monthly basis to better understand consumer behavior and how that translates into how to invest in the consumer base. Our survey topics have spanned pandemic spending behaviors to the impact of inflation, to more recently over the past two months, how the U.S. consumer is approaching the holiday gift giving season.

Our survey suggests that consumers expect to spend more than $800 on average on holiday gifts this year, which is up from last year. Although those with household incomes under $100,000 expect to spend less. Not incredibly surprising since the impact of inflation is inherently more pronounced on lower household incomes. Our survey also indicated that off-price retailers are poised to get a better share of holiday spend this year. That corresponds with our survey’s findings that consumers are generally feeling worse about their financial condition as we get closer to the holidays in December versus our pre-Thanksgiving survey.

The erosion versus last year is most pronounced for those over 45 years old and those with household incomes under $100,000. While those under 29 and or with household incomes over $100,000 generally feel better than last year. This speaks to the bifurcation we're seeing in spending across household incomes and age groups. As consumers approach the holidays, they expect to use credit cards to a lesser extent than last year to buy gifts, down two to three percentage points with about 38 to 40% expecting to finance at least part of their holiday gifts. This decline was broad-based across most age groups, regions of the country and household incomes.

That said, for those who do expect to finance their holiday spending, they expect to do so to a greater extent, financing 60 to 65% of their spending, up about five points from last year pointing to more pressure on a subset of the consumers we surveyed. In keeping with trends from last year, about half of consumers will cut back on other spending to afford holiday gifts, generally curtailing spending in areas like restaurants or out-of-home entertainment.

From a category perspective, electronics, apparel and toys always lead the holiday gift giving list, although apparel was the only category where we continue to see generally bullish consumer sentiment as it relates to gift giving. By contrast, consumers generally expect to spend less on categories like toys, fitness equipment, and jewelry this year.

Generally, our holiday survey reinforces much of the bifurcation we've seen in consumer spending all year with those with household incomes under $100,000 more pressured alongside a broader move away from bigger ticket items. This suggests that aspirational everyday luxury brands that cater to more affluent customers could be poised for a solid holiday while trade down and bargain shopping appears poised to bolster trends in categories like off-price.