Interest rate hikes may not slow holiday shoppers this year
Interest rate hikes may not slow holiday shoppers this year

Interest rate hikes may not slow holiday shoppers this year

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As the Federal Reserve raises interest rates in a bid to tame inflation, expectations may be that holiday spending in the US will be more subdued than in previous years.

But according to analysts, factors including low unemployment and the potential for big discounts mean this holiday season will be another busy season.

In a sign of the uncertainty that US retailers now face, rival big-box giants Walmart and Target announced two very different holiday hiring targets this week. While Walmart is now targeting 40,000 new workers, most of them seasonal — down from 150,000 last year — Target wants to add another 100,000 workers this holiday season. That’s the same number that was set last year.

Further uncertainty is reflected in holiday spending forecasts. US consulting firm Deloitte now expects overall holiday sales to rise 4% to 6% this year compared to 15.1% growth last winter. But it also expects e-commerce sales to rise 12.8% to 14.3% compared to 8.4% last year as consumers search for deals online.

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Retailers continue to see excess inventory on many items, according to Ted Rossman, senior industry analyst at — the result of improvements in supply chains, shifts in spending to services and experiences, and lower demand overall.

This is further evidenced in inflation data, which shows the prices of traditional gifts such as toys and clothing, as well as electronic goods such as TVs and stereos, rising mostly more slowly than the overall inflation rate.

Walmart has announced that more than half of the toys on its annual Top Toys List will sell for under $50, with many under $25.

Thanks to a still healthy job market helping people feel more secure about their finances, this holiday season will be “the best buyer’s market for years,” Rossman said.

Fed Impact

On Wednesday, the Federal Reserve raised its key interest rate by 0.75% as it seeks to tame an inflation rate not seen in four decades.

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The aim is to curb rising post-pandemic demand, slow the economy and push down prices.

In the near future, that means higher borrowing costs. Already, the average mortgage rate is now well above 6%, the highest since at least 2008.

For consumers planning to use a credit card to make purchases, the average APR rate is currently at its highest level since 1995, at around 18%, according to, and near a record level of 19%.

But Rossman said there is usually a month or two lag before credit card rates rise after a Fed hike takes effect. Plus, many individuals who already have credit card debt are usually willing to take on more, he says.

“There is a bit of denial, or mental accounting, if you already have debts,” he said.

In general, Rossman said, household balance sheets remained healthy ahead of the holiday season. This is something he said helped “unpack” consumer sentiment readings currently at all-time lows amid greater inflation concerns.

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He said he didn’t expect a spike in credit card arrears amid higher APR rates.

“People still have more money in the bank,” he said. “They have paid their debts, and while there are definitely warning signs on the horizon, many people are still starting off on a strong note.”

This is a sentiment echoed in Bank of America’s Consumer Checkpoint report, which found that today, consumers continue to feel “more cheerful.”

“Consumers continue to show fairly strong spending growth,” said BofA. “They have benefited recently from falling gasoline prices, and continue to experience a strong labor market.”

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