Welcome aboard the Mastercard Holiday Express, a train bound for the holiday season. The Mastercard Economics Institute experts will be your conductors on a journey through the economic landscape to meet this year’s U.S. holiday shopper.

Explore the tour stops below:

Understanding the consumer mindset can help U.S. retailers avoid obstacles – watch out for caribou on the tracks! – absorb valuable lessons about holiday spending and celebrate a successful 2024 holiday season. All aboard!

Glimpsing a view of holiday spending expectations

Based on our SpendingPulse insights, which measure in-store and online retail sales across all forms of payment, spending during the holiday season is expected to be up 3.2% year over year (yoy), excluding automotive sales, from November 1 – December 24, 2024. While that period is a critical time for the holiday shopping season, each year the holiday shopping season starts earlier, given pre-Black Friday promotions, suggesting we should also monitor spending trends in October. The calendar matters as well, given the shorter season this year with fewer days between Thanksgiving and Christmas.

Let’s start by understanding the state of the consumer and economy.

Changes in the economic landscape

The U.S. economy continues to grow and evolve. There have been shifts in the economy, however, which leave the consumer with less cushion this season. Let’s look back at the lessons learned.

In 2023, U.S. holiday shoppers were focused on taking their power back. The resilient 2023 economy was a story of positive surprises that buoyed the shopper. The economy added jobs at a solid pace and the unemployment rate was hitting record lows. Consumers benefitted from strong income growth, allowing them to continue to spend and engage in the economy productively.

The 2023 consumer concentrated spending during promotional moments last holiday season, searching for – and receiving – discounts. Because Christmas fell on a weekend, we observed some last-minute shopping and a rush of spending right into the holiday.

The 2024 holiday shopper will likely be using a similar playbook as last year, making choices and looking for the best deals, but may be feeling slightly more stretched. Some key developments:

  • Job creation is still healthy but has cooled, due to a slowing in hiring rates. The good news is that layoff rates are very low and the number of job openings still slightly exceeds the number of unemployed individuals.

  • The story of real wage growth continues. While nominal wage growth has slowed, it remains above the pre-COVID average and above the underlying inflation rate for goods and services, which has also slowed.

  • In 2023, interest rate increases were still on the table. But heading into this holiday season, interest rates are declining as the Federal Reserve (“the Fed”) eases monetary policy. This early holiday gift from the Fed in the form of a rate cut may provide some relief for borrowers.

  • While household debt has accrued, so has household wealth. In the past year, financial assets have been appreciating in value along with housing, providing a powerfully positive wealth effect for those who participate (see chart below). That said, the increase in debt and higher rates have meant greater debt service.

  • In 2023, consumers fully expected disinflation (a slowing rate of inflation) and in 2024, they got their wish. For some categories this has led to outright deflation (price declines). When prices decline, the consumer gets more things for less – always a good feeling!


NOTE: LATEST ESTIMATES AS OF Q2-2024 WITH THE EXCEPTION OF HOME PRICES WHICH ARE AS OF Q1-2024.
SOURCE: BUREAU OF LABOR STATISTICS, STANDARD & POOR'S, FEDERAL RESERVE BOARD, MASTERCARD ECONOMICS INSTITUTE


Understanding how inflation and prices may impact holiday purchases

It isn’t just cooler weather we have to prepare for! Inflation continues to cool and consumers continue to expect – and demand – promotions and discounts.

The price may be right for many categories of 2024 holiday purchases. Prices for typical holiday items, including electronics and appliances, apparel, sporting goods, personal care products and jewelry, have been either declining or increasing only modestly over the last year (see chart below).

This is a return to the pre-pandemic norm when these goods consistently experienced outright declines in prices. The outsized inflation for the holiday shopping basket in 2021 and 2022 — driven by bottlenecks in global manufacturing and transportation — was the exception. The renewed moderation in prices should incentivize consumers to purchase more goods.

This deflationary trend for the holiday basket, combined with expected interest-rate reductions by the Fed that lower financing costs for big-ticket items, could narrow the gap between spending on goods and services. The replacement cycle could also be kicking in given that the surge in spending on these items happened right after the pandemic hit, almost five years ago. Spending on services has outperformed over the last two years due to pent-up demand and the consumer preference shift toward experiences.


SOURCE: BUREAU OF ECONOMIC ANALYSIS, MASTERCARD ECONOMICS INSTITUTE

Exploring consumer cohorts: A story for me, a story for you

Holiday 2024 is a tale of cohort groups. On one end is the value-conscious consumer who feels stretched by economic pressures. Discounts and promotions are no longer just “nice to have”; they are essential. On the other end of the spectrum is a confident consumer who feels more free to spend.

The reality is that most consumers fall somewhere in between. And, at times, they shift toward one end of the spectrum or the other, depending on circumstances. Let’s unpack it:

  1. Balancing act: The health of the household balance sheet is a differentiating factor. Those households with financial and real estate assets have experienced significant wealth appreciation since the fourth quarter of 2019, with the value of financial holdings up 31% and real estate holdings up 49%. On the other side of the ledger, for some households with debt, the rise in interest rates has created a strain. Again, this isn’t uniform. Many homeowners locked in historically low mortgage rates prior to 2022. But for those who recently purchased a home or a car or have student debt, the debt burden is significantly higher.

  2. Regional realities: The economy feels and looks different depending on where you live. This is always the case, but it is potentially even more relevant in this cycle given greater household mobility and companies moving their headquarters to different states post-pandemic. In general, the Mountain and Sunbelt states have experienced strong in-migration and have healthier economies with greater business formation and job creation. But the trajectory has been more challenging in parts of the Northeast and Midwest. Of course, there are always exceptions to a broad trend and the situation can differ by state, county and even zip code.

  3. Income investigation: Labor market dynamics differ by sector. Job creation in the health care & social assistance and government sectors account for more than half of overall jobs added to the U.S. economy this year. On the other hand, job growth has stagnated for the manufacturing, mining and information sectors. Recently, wage growth has slowed for lower-paid sectors, which is a sharp reversal from earlier in the recovery when they experienced the fastest and most meaningful wage growth. Consumers who are employed in lower-paid sectors are particularly sensitive to these shifting wage dynamics, especially given the sizable cumulative increases in prices of essentials since the pandemic.

Looking for glitz and glam

All that glitters is gold this holiday season and younger-age cohorts are leading the way. A look at top jewelry retailers by the number of transactions shows that spending on brands that are popular among the Millennial and Gen Z cohorts has grown significantly in recent years. The growth far outpaces spending on traditional brands, which tend to be more expensive (see chart below).

Our aggregated and anonymized Mastercard insights show that spending on these jewelry brands that are popular among Millennials and Gen Zer’s has been driven by the number of transactions - their transaction share is up to 44% from 38% in 2022 - while average ticket value has declined to $116 from $124.

Parents will be under pressure to ensure that their kids are up to date with the popular “bling” this holiday season, but luckily for them, these popular brands offer approachable prices.

Popular Millennial and Gen Z brands are gaining traction

― Millennial/Gen Z ― Traditional


NOTE: THE 2 CATEGORIES OF JEWELRY BRANDS ARE CREATED BY TAGGING THE TOP MERCHANTS BY NUMBER OF TRANSACTIONS IN THE JEWELRY INDUSTRY. MILLENNIAL/GEN Z BRAND CATEGORY DENOTES THE MERCHANTS WHOSE TARGET CUSTOMER IS MILLENNIAL/GEN Z.
SOURCE: MASTERCARD ECONOMICS INSTITUTE

Now arriving at the holiday season!

As the Mastercard Holiday Express pulls into the station, we’ve learned about the 2024 U.S. holiday shopper’s mindset and spending patterns. The state of the economy, characterized by moderating inflation and potential interest rate reductions, will play a significant role in consumer spending decisions. Retailers must stay on top of shifting consumer preferences in a holiday season that promises to be dynamic. Here’s to a prosperous and festive holiday season!

To learn more about economic insights from the Mastercard Economics Institute, contact your Mastercard representative or request a demo.

Notes & Disclaimer

About the Mastercard Economics Institute

Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights - including Mastercard SpendingPulse™ - and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.

Disclaimer

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  1. Our SpendingPulse insights capture electronics purchases that are increasingly being made on digital platforms, leaving us with a broader definition of the sector.↩︎