Holiday Retail Sales’ Early Strength Won’t Last

Retailers shouldn’t get their hopes up from good numbers in October; shoppers can expect deep discounting ahead.

Shoppers with shopping cart and bags
(Image credit: Getty Images)

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 Amazon’s October Prime Days sales and other early-season events got consumers to open their wallets, but those purchases will end up borrowing would-be sales from the traditional holiday-shopping months of November and December, as consumers tighten budgets amid inflation and fears of a slowing economy. While Walmart’s sales are doing well, even it has noticed a significant amount of substitution of lower-priced items for higher-priced ones from price-sensitive shoppers. Other retailers, such as Target, have lowered their earnings guidance for the season. (Target has now missed analysts' earnings per share (EPS) forecasts for three consecutive quarters and has seen its stock punished accordingly.) 

 After adjusting for price changes, retail spending jumped in October for e-commerce, clothing, furniture and home furnishings, groceries and meals at restaurants. However, in an indication that consumers are cutting back on non-essentials, spending remained weak at general merchandise, sporting goods and hobby stores. Purchases of big-ticket electronics, such as TVs, have been weaker than expected. The final word on this category, of course, won’t be given until after the Black Friday and Cyber Monday sales. But high retail inventories in general suggest that there will likely be heavy discounting late this holiday season.

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Going forward, some sales weakness will result from consumers switching their buying patterns to more services. Restaurant sales remain surprisingly strong, given that menu prices have risen at an 11% annual rate over the past three months. Travel is another spending category that is currently doing well. But slow economic growth will likely make consumers more cautious in their spending in general.  

David Payne
Staff Economist, The Kiplinger Letter
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.