- Americans have a pessimistic view of the economy right now, and it's making for a Grinchy Christmas.
- Wealthier shoppers are spending but grumbling about gift availability during the supply shortage.
- Lower-income shoppers are feeling the burn of inflation and are largely unable to shop.
America is running out of Santas, evergreens, and gifts. None of that makes for a very Merry Christmas.
Just ask holiday shoppers, many of whom feel like a Grinch in an era of shortages this holiday season.
Thanks to inflation fears, the University of Michigan's Index of Consumer Sentiment reported economic angst at a decade low in November and an expectation of a more than 4.9% price increase in 2022, also the highest since the Great Recession. Meanwhile, a recent Deloitte survey found that 70% of shoppers are expecting higher prices throughout the holidays.
It's quite a grumpy outlook in the middle of an economy that seems to be doing great. President Joe Biden has already led the US through one of its strongest ever quarters of economic growth, and the Senate just passed his $1 trillion infrastructure bill. In the labor force, hiring picked up in October after slowing during the Delta wave. It's an employee's world as many workers quit their jobs and demand better pay, with employers scrambling to retain them. And Americans haven't stopped buying stuff, either, sending consumer spending to a record high last month.
But a healing America isn't without side effects in the shape of a supply chain crisis. As the economy reshaped itself into one based on remote work, Americans had more use for gym equipment and new TVs and less need to go to restaurants and hotels. The demand outstripped supply just as supply broke down.
That means higher prices and longer wait times are sticking with us as we near the end of the year, and none of it is sparking holiday cheer.
As if that wasn't enough, the news of a potentially vaccine-resistant new COVID variant rattled markets on Black Friday, sending the Dow down as much as 1,000 points amid fears that the "reopening" trade was being swapped again for a "stay at home" economy. This is no surprise if you have an outlook like Dr. Seuss's proverbial Grinch.
Grumpy about availability and inflation
Part of October's retail sales boom was actually preparation: Americans were already holiday shopping.
The behavior was abnormally proactive, well before Black Friday and Cyber Monday sales. As Bloomberg's Michael R. Strain wrote, it's a sign that consumers are less concerned about price increases and more worried about the factors that make buying and giving holiday gifts more difficult.
—Susana (@pvccio) November 23, 2021
It's likely that high holiday demand and rising supply-chain costs could prompt companies to hike their prices, professor Richard Kilgore, instructor in the Online Management and Business Administration program at Maryville University, told Insider. But he said holiday spending is resilient: "Consumers are often less price sensitive when it comes to making the holidays special."
While some companies may run out of stock on high-demand items, Kilgore added, sales could be less impacted as consumers move to their second and third choices.
Several forecasts back him up. JP Morgan upgraded its expectations for economic growth in the fourth quarter, the National Retail Federation predicted US holiday sales surging from 8.5% to 10.5% year-over-year, and Gallup found that consumers plan to spend $886 on holiday gifts this year, compared to $800 in 2020. This "robust" signals strong holiday sales, Gallup said.
But for lower-income shoppers who can no longer bank on pandemic relief aid, inflated prices are much more of a pain point. About a third of their earnings goes to essentials like food and energy, which have been some of inflation's biggest victims. It's eating into holiday budgets, leaving 11% of Americans with plans to not shop at all, per Deloitte. Of this group, 65% earn less than $50,000.
That's the highest share in a decade — and more than double the share in 2020, which was itself a very miserable holiday as people awaited delayed stimulus checks.
Rich Grinch and poor Grinch
The type of Grinch you are looks different depending on how rich you are. Wealthier shoppers are ready to splurge but grumbling about not getting the things they want in time. Meanwhile, less wealthy shoppers are upset they can't afford a big holiday season. It's another K-shaped Christmas, but this year, shoppers are united by a persisting pessimism. The wealthy were relatively unbothered by the 2020 holiday season, and this year they're catching onto the economic misery further down the economic ladder.
Economic concerns have hit a pandemic high, with 70% of Americans thinking the economy is getting worse, according to a separate Gallup poll. However, that's still low historically, nowhere near the negative sentiment levels that plagued the years surrounding the 2008 financial crisis.
As Ramesh Ponnuru wrote for Bloomberg, Americans have been pessimistic about the economy for much of the past 20 years. But inflation is the highest it's been in 30 years, and supply shortages have threatened the "just-in-time economy" of the 2000s. For many Americans, especially younger generations, these are economic problems they've yet to experience.
Meanwhile, workers are grouchy because they can't find jobs, while employers are grouchy because they can't find workers, and a historic housing crisis has dampened many a homeowning dream.
While there have been some signs that the supply chain crisis is easing, Kilgore said it's nearly impossible to actually tell. "Improvements in situations at ports may be transient changes that simply moved unshipped inventory off docks into storage waiting for trucks to avoid those penalty fees," he said. "The bottleneck just moves to a different link in the chain."
In Dr Seuss's famous children's book that brought the Grinch to the world, the grumpy green character was ultimately transformed by holiday cheer. Americans will need a lot of that to turn around their feelings in 2021.