Americans' holiday spending between November 1 and December 24 surged 3.1 percent from last year, but spending for the same period in 2022 was up more than 7 percent from 2021, according to a new report from Mastercard.
In September, Mastercard predicted that retail sales would increase by 3.7 percent year-over-year as a result of lowered inflation, increased product demand, savings and increasing wages.
"This holiday season, the consumer showed up, spending in a deliberate manner," Michelle Meyer, the chief economist of Mastercard Economics Institute, said in a statement. "The economic backdrop remains favorable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most."
Despite Americans' strategic spending this holiday season, a large number drew in spending as inflationary pressures made many gifts and celebrations out of reach.
To help navigate some of the financial strain, Americans turned to online retailers, where they could more easily keep track if their spending was on budget. Online retail sales increased 6.3 percent year-over-year, compared to just 2.2 percent for in-store sales.
"Spending online is increasing at a faster pace than in-store, therefore taking a growing slice of the retail pie, but shopping in-store still makes up a considerably larger portion of total retail spending," the report said.
Specifically, consumers were eager to pay for apparel, one of the top categories for shopping this season. Year-over-year sales jumped by 2.4 percent in that category alone.
"Inflation played the role of the Grinch, making everything more expensive, from groceries to gas," finance expert Andrei Vasilescu, co-founder and CEO of DontPayFull, told Newsweek. "This left many people with less to spend on extravagant gifts, leading to more modest choices like stocking stuffers."
Food was also a major spending category, with the restaurant sector reporting 7.8 percent year-over-year growth, and even grocery stores noting a 2.1 percent uptick.
Meanwhile, electronics and jewelry spending were down in 2023, reporting 0.4 percent and 2 percent losses, respectively.
The numbers reflect a shift in priorities for Americans toward more mindful spending and valuing experiences over material items, Vasilescu said.
"Cozy movie nights and weekend getaways became more appealing than the latest gadgets," Vasilescu said. "Gift cards also became a popular choice, offering a practical and flexible gifting option that helped people stick to their budgets."
Another possible reason for the stalled growth in consumer spending this holiday season could be how early stores started offering holiday deals. With more time to get their shopping done, consumers were able to find the best deals and spend less in the process.
"Retailers started promotions early this season, giving consumers time to hunt for the best deals and promotions," Steve Sadove, senior adviser for Mastercard and former CEO and chairman of Saks Incorporated, said in the report. "Ultimately it was about getting the most bang for your buck as consumers spent on a variety of goods and services, resurfacing spending trends from before the pandemic."
Spending could continue on this path in early 2024. Another study from the Bank of Montreal found that nearly half of Americans were adjusting their new year's financial resolutions over the escalating costs of living.
And because of a continued sense of skepticism about the economy, Americans are likely to continue to keep their purse strings close before taking on big purchases, according to Sahak Manuelian, managing director and head of equity trading at Wedbush Securities.
"We would think habits begin to revert back to pre-pandemic levels as the economy normalizes from all the stimulus thrown at it for the better part of the last couple years," Manuelian told Newsweek. "Inflationary pressures certainly have been abating, though consumers still feeling the higher prices in everyday products and services."
