The American consumer is heading into the holiday season with a diminished sense of economic cheer. New polling data shows a broad consensus among households that continued high prices—particularly for food and everyday essentials—will force significant cutbacks on traditional holiday spending, shifting the focus from lavish gifts to pragmatic budgeting.
While the overall anticipated retail sales figures may still appear strong, driven primarily by higher prices and resilient spending among affluent households, a closer look at consumer sentiment reveals a deep bifurcation. For the majority of middle- and lower-income families, inflation and economic uncertainty are dictating a fundamental change in how they celebrate.
The Retreat from Gift Spending
According to multiple surveys, the sharpest reduction is expected in the gift-giving category. A recent analysis indicates consumers anticipate a substantial decrease in their average spending on gifts compared to the previous year, marking the first notable drop in this metric since the pandemic-era disruption in 2020.
- The Primary Target for Cuts: Gifts, dining out, and non-essential travel are the first categories on the chopping block. Around one-third of consumers plan to reduce their gift budget, with over half of those saying they will either buy fewer gifts overall or switch to significantly cheaper alternatives.
- Generational Divide: Financial pressure is not evenly distributed. Younger Americans are facing the most acute strain. Gen Z, often dealing with a challenging job market and higher fixed expenses, expects to slash their holiday budgets by as much as 23%—the largest pullback across any age demographic. Conversely, Baby Boomers, who often benefit from more stable assets, are the only age group planning a modest increase in spending.
- The Debt Dilemma: The reluctance to spend is fueled by necessity. Many Americans are already stretched thin, with a significant percentage of parents reporting they start the season with existing credit card debt. Over half of those polled expect to incur new holiday debt that will take months to pay off, signaling that for many, the holidays are not about discretionary fun but about managing unavoidable seasonal pressure.
The Shadow of ‘Invisible Inflation’
The ongoing challenge for consumers is that inflation is particularly sticky in essential categories. While general inflation figures may have moderated, prices for groceries and household staples remain elevated—in some cases, 18% higher than just a few years ago. This “invisible inflation” on necessities saps the discretionary income that would typically be allocated to holiday festivities.
This phenomenon is leading to a new level of consumer pragmatism:
- Chasing Value: Shoppers are becoming more strategic, accelerating the shift toward online price comparisons, hunting for deeper discounts on Black Friday and Cyber Monday, and relying heavily on loyalty programs and coupons.
- Trading Down: Consumers are increasingly opting for private-label or house brands over premium items, especially in grocery and non-gift categories, to make their dollars stretch further.
- Experiential Priorities: Despite the widespread financial strain, Americans are showing a clear desire to preserve cherished traditions. They are less willing to cut back on small-scale travel, hosting intimate gatherings, and meaningful experiences, often choosing to trim “extras” like decorations and large-scale parties to protect these core moments.
The K-Shaped Economy Defines the Season
The data ultimately paints a picture of a “K-shaped” holiday season. High-income households, buoyed by strong asset markets, continue to spend robustly, driving overall revenue growth for retailers, often on high-end goods, travel, and luxury items. However, this nominal growth masks the growing financial anxiety and retrenchment happening among the rest of the population.
For the majority of US households, the message this year is clear: the season will be one of necessity and careful calibration, where the joy of celebration must be balanced with the reality of the monthly budget. Financial advisors are urging families to be proactive, recommending they set strict spending limits for gifts and prioritize debt avoidance over temporary holiday extravagance.
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