Holiday Spending: Here’s How the US Consumer Drives the Economic Outlook 

TradingKey - Now that Black Friday was kicked off last week with the passing of Thanksgiving, investors are turning their attention to the state of the US consumer.

That’s because the “holiday season” is upon us and this typically involves a lot of consumer spending in the world’s largest economy. In fact, the holiday season now takes into account November and December given the multiple celebrations that are on during that time, such as Thanksgiving, Christmas, and New Year’s.

Because the US economy is largely a consumer-driven one – with consumer spending making up around 68% of GDP – what people spend their money on matters, particularly when it comes to end-of-year spending. 

So, what can investors expect from US consumer this holiday season? And are there any particular consumer industries worth keeping an eye on? 

Record Black Friday online sales hails strong consumer

Now that the data are in on the Black Friday shopping bonanza, it’s clear that the US consumer is doing fine. That’s because US shoppers spent a record US$10.8 billion in online sales on Friday, up more than 10.2% year-on-year according to Adobe Analytics – which tracks retail transactions.

That translated into online shoppers spending around US$11.3 million per minute between 10pm and 2am on Friday (29 November). It also highlighted how consumers are now 100% comfortable purchasing via their smartphones given the majority (53%) of online sales were done via mobile.

Overall spending also continues to be solid. The National Federation of Retailers (NRF) is predicting that American consumers will spend between US$980 billion to US$990 billion on retail sales during the two-month holiday season, a bump up from the US$955 billion recorded for the same two months in 2023. Emarketer still sees growth in online sales during the holiday season outpacing the broader growth in retail sales.

Source: EMarketer forecast as of July 2024 

Last year, the NRF forecast consumer spending growth of 3% to 4% and the final growth number for the last two months of 2023 actually ended up being 3.9%, towards the top of the range. With the NRF predicting 2.5% to 3.5% growth for this holiday season, there is certainly potential for a beat and for the US consumer to spend over US$1 trillion in total.

That tallies with other data, too. According to a TransUnion survey of 3,000 Americans, it found that 73% of higher-income shoppers were planning to spend the same amount as last year, or more, during the holiday season. But what do most consumers spend their money on during the holiday season and which stocks might benefit?

Understanding the spending patterns

The US Bureau of Labor Statistics (BLS) actually broke down overall consumer spending in 2023 and housing-related expenditures (32.9%) took up the bulk of US consumer spending followed by transportation (17%) and spending on food (12.9%).

Of course, during the holiday season, some of that spending may shift. The biggest sales during the recent Black Friday online sales were for toys, jewellery, household appliances, skin and hair-care products, and electronic devices.

While the US consumer is doing well, inflation still remains slightly elevated and that inflation number could receive a more nasty surprise if President-elect Trump imposes high trade tariffs when he takes office in January. As a result, larger retailers (with massive scale) that have performed well amid higher inflation are likely to continue to be favoured.

These include the retail triumvirate of Amazon.com Inc (NASDAQ: AMZN), Walmart Inc (NYSE: WMT), and Costco Wholesale Corporation (NASDAQ: COST). With all three having huge scale and offering all sorts of deals during the holiday season, they’re most likely to emerge as the largest winners from a macroeconomic perspective.

 Investors have already seen that in the trio’s latest earnings, which have all been solid, versus less-than-stellar results from weaker retailers like Target Corp (NYSE: TGT).

Of course, more niche retailers can also perform well and one to watch in the home improvement space is Home Depot (NYSE: HD), a massive retailer that is also renowned for their holiday deals and sales on everything from garden décor to home appliances. 

Those companies that have an appealing retail offering, can consistently expand margins and also manage their inventory effectively will be able to benefit from the huge spending that’s ongoing during the holiday season. 

What to watch in 2025

The US consumer is still in fine shape during the 2024 holiday season and one positive this year is that inflation – while still higher than normal – has come down significantly over the past year.

That’s also resulted in higher consumer confidence, with the widely-watched University of Michigan survey on consumer confidence recently reaching a six-month high.

Boosting that consumer confidence is news that real wages, adjusted for inflation, are continuing to rise and that equates to lower and middle-class consumers feeling richer. That’s also been helped, of course, by record-high asset prices, as we’ve seen in both the stock markets and crypto markets.

Whether the good vibes for consumers can continue depends on whether the US consumer can navigate potential tariffs and higher inflation next year but, so far, the signs have been good for investors.