The secret cycle of consumer spending: How Americans really pay for Christmas
You tried to set a holiday budget. You tried to save enough money to cover it. You tried not to overspend. You tried not to go into debt.
You succeeded at exactly one of those tasks: You did, at one point, have a holiday budget. And then you blew past it.
Now, it’s January, and you’ve set a resolution: Never, ever spend money again.
A trove of monthly shopping data from the U.S. Census reveals the secret cycle of consumer spending in America: Every December, we spend money like it was going out of fashion. Every January, we try to make amends.
In 2023, consumers spent the least money in the first two months: $510 billion in January, $489 billion in February. They spent the most money in December: $636 billion.
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In January and February 2024, retail spending plunged to around $519 billion per month. In March, consumers dusted off their debit cards and returned to the malls.
Shoppers splurge in December, hibernate in January
The same seasonal cycle plays out every year, according to data from the Census Bureau’s Monthly Retail Trade Survey.
(To reveal the peaks and valleys more clearly, we excluded automobiles from the mix, and we didn’t adjust the figures for seasonal variations: Those variations, after all, are the point of the analysis.)
“People are spending around the holidays. And, yes, it kind of falls out of bed in January,” said Tim Quinlan, a senior economist at Wells Fargo. “You’re back from the holidays. You have credit card bills. You probably overspent a little bit.”
In a world of perfectly balanced budgets, economists say, consumer spending wouldn’t “fall out of bed” in the first two months of the year.
In that perfect world, we would set a budget for holiday spending. We would save a little money every month toward that goal. We would spread our holiday spending across the year, rather than do all our shopping in December. We would keep to the budget. We would make all of our purchases in cash, and none of them on credit.
Did Americans blow their holiday budgets in 2024?
Early reports suggest, however, that many Americans busted their holiday budgets in 2024.
Total holiday spending surged from $222 billion in 2023 to $241 billion in 2024, according to estimates from Adobe.
The total includes $18 billion in buy now, pay later purchases, a kind of short-term borrowing that allows consumers to pay over time.
“Plenty of consumers put that stuff on plastic, and now it’s going to be time to pay the piper,” said Donna Hoffman, a marketing professor at the George Washington School of Business.
Credit card interest rates sit near all-time highs, and the average cardholder with a balance owes $7,236, according to LendingTree.
With debt rising, forecasters expect another slow January at the mall.
“It would not surprise me if we saw an even more aggressive dip, with people being even more conservative in their spending,” said Derek Rucker, a marketing professor at Northwestern University’s Kellogg School of Management.
There are good reasons not to shop in January
The spending slowdown in January and February actually reflects a confluence of factors, said Randy Allen, a senior lecturer of strategy and business economics at Cornell University.
“People aren’t traveling in January and February,” she said. “There are no big holidays in January and February, other than Valentine’s Day, but that isn’t driving huge amounts of spending.”
Retailers build up their inventory in the late months of the year, Allen said, “because they’re getting ready for the Thanksgiving, Hanukkah, Christmas, New Year’s sales. And that inventory takes a huge drop in January.”
Marketers ease off on sales and promotions in the new year. “They’re not giving you the most attractive offers,” Rucker said.
All of those factors make it easier for consumers not to spend in January and February, on top of any remorse and fatigue they carry over from the holidays.
“The trough shows that guilt,” Allen said. “And it’s also, ‘I’m tired of shopping.’”
January is also the peak month for returns.
“We call it Return-uary,” said Gaurav Saran, founder of ReverseLogix, a platform for returns.
Retailers generally lose money when you return an item, although they may try to earn it back by selling you something else.
“Nobody loves you when you walk in with a return,” Saran said.
Consumer spending tends to rebound in March, as Americans contemplate Spring Break, graduations, weddings and summer travel. From that month through October, monthly sales hover within a range that you might call “normal.” In November, the holiday spending cycle begins anew.
Will Prime Day flatten the seasonal shopping cycle?
Some forecasters say the seasonal cycle is not quite so dramatic now as in years past.
Wells Fargo forecast holiday sales would rise only 3.3% in November and December 2024, compared to the same span in 2023. That figure would fall below the historical average.
“December is still the most important month of the year for retailers, but it has been losing some luster,” wrote Quinlan and his colleagues in a 2024 Holiday Sales Outlook. “While the month still commands the largest share of annual sales in our holiday sales categories, a shrinking share of sales happen in December each year.”
Quinlan theorizes that online shopping has empowered consumers to spread out their purchases over the year.
“And I’ll give you a two-word reason for why that’s happening,” he said. “And that’s Prime Day.”
Amazon holds annual sales events for its Prime members, typically in summer and fall.
“Other retailers pile onto it,” Quinlan said. “They’ve created a reason to spend money in the summer months, when sales are slow.”
He believes the online consumer-verse will ultimately flatten the seasonal sales cycle.
Not all retail experts agree.
Prime Day “may dampen” the cycle of spending, “but I don’t think it’s going to break it,” Allen said. “Most of us aren’t thinking about, ‘What am I going to get people for Christmas?’ on Amazon Prime Day.”