Despite the challenges posed by high interest rates, consumers have been keeping the economy on track. According to Mastercard SpendingPulse, which tracks both in-store and online sales, holiday spending in 2024 exceeded expectations and outperformed last year’s gift-buying season.
This surge in end-of-year spending is yet another sign of the strong purchasing power of U.S. consumers, allowing the economy to thrive even with prolonged high interest rates.
From November 1 to December 24, retail sales rose by 3.8% compared to the same timeframe last year, surpassing Mastercard’s own estimate of 3.2% and last year’s growth rate of 3.1%. It’s worth noting that these figures exclude car sales.
Michelle Meyer, chief economist at the Mastercard Economics Institute, shared with ABC News that this solid holiday shopping season reflects a trend we’ve seen throughout the year: consumers are ready to spend. In particular, jewelry sales saw a significant increase of over 4%, leading all product categories. Apparel and electronics also enjoyed healthy growth.
Interestingly, most of this shopping frenzy happened online, with e-commerce spending jumping by 6.7% compared to last year’s holiday season.
While overall spending indicates that U.S. consumers are doing well financially, Meyer pointed out that many shoppers seem to be on the lookout for deals.
The holiday shopping season showed us that while people are willing and able to spend money, they’re also keen on finding good value, she explained further about how e-commerce activity spiked during major promotional events.
This boost in holiday sales suggests that the U.S. economy is holding strong despite high borrowing costs; just look at how gross domestic product grew at an impressive annualized rate of 2.8% for the three months ending in September—the latest data we have!
The job market has definitely cooled off a bit, but it’s still holding strong. Right now, the unemployment rate is at 4.2%, which is pretty impressive for historical standards. Plus, when you look at it, consumer spending makes up almost 75% of the economic activity in the U.S.
Holiday spending saw a bump just as borrowers were feeling a bit of relief, thanks to the Federal Reserve cutting interest rates by a total of one percentage point in the last few months of the year.
Still, those rates are hanging out at historically high levels, between 4.25 and 4.5 percent. Normally, lower interest rates help get the economy moving by making it easier for people and businesses to borrow money, which leads to more investment and spending.
But here’s the catch: these rate cuts usually take a few months before they really start influencing the economy, so it’s likely that this recent drop didn’t do much for holiday shopping right away.
Earlier this month, the Fed hinted that there might be fewer rate cuts next year than they initially thought. This suggests they’re worried inflation might be tougher to tackle than they expected just a little while ago.
At a press conference in Washington D.C., Federal Chair Jerome Powell mentioned that their decision to keep interest rates high is partly because of how well the U.S. economy is doing and how shoppers are driving it forward. He said, We think the economy is in a really good place, and added that growth of consumer spending has remained resilient.