Consumers have plenty to be thankful for this holiday season: the job market has improved with the unemployment rate falling to 5% in October, wages are heading higher, and gas prices are at the lowest since 2008 according to AAA.
Holiday spending
That still hasn’t been enough to encourage households to take out that extra cash and spend it just yet—or keep spirits high. Consumers spent less in October and took the extra money they earned and socked it away. The Commerce Department reported that spending edged up 0.1% last month, while income doubled from September to 0.4%. The savings rate rose to 5.3%, the highest level in nearly three years.
However, Lynn Franco, Director of Economic Indicators at the Conference Board, doesn’t expect the consumer to disappoint this holiday shopping season. “Consumers tend not to hold back when it comes to the holidays. That seems to be, sort of, the one time of the year when they spend a little bit extra,” Franco explains in the attached video.
Get the Latest Market Data and News with the Yahoo Finance App
A survey of holiday gift spending intentions conducted for the Conference Board by Nielsen found that U.S. households plan to spend an average of $576 on gifts this holiday season. That’s up 7% from the $538 they spent last year.
Franco says, “While this season is shaping up to surpass last year’s, consumers are still unwilling to pay full price for gifts. The majority say they will be on the lookout for bargains and incentives.”
Consumer confidence
Even though households may be spending more for their loved ones this holiday shopping season, optimism has waned. The Conference Board’s Consumer Confidence Index fell further in November, to 90.4 from 99.1 in October.
“The decline was mainly due to a less favorable view of the job market. Consumers’ appraisal of current business conditions, on the other hand, was mixed. Fewer consumers said conditions had improved, while the proportion saying conditions had deteriorated also declined. Heading into 2016, consumers are cautious about the labor market and expect little change in business conditions.”
She also points out that jobs and income will be critical factors in determining spending as we approach the New Year.
Confidence & Fed hike
And how much are households worried about a potential interest rate hike by the Federal Reserve next month after benefiting from record low rate for nearly a decade? Franco doesn’t believe that is likely to weigh on confidence going forward. "They’re all [consumers] expecting the hike. It's really not a surprise [interest rate hike]. So, I don't think it will really impact spending, or even ... confidence in the coming months," she added.
