Americans spent willingly at restaurants over the holidays in another example of consumers continuing to spend despite fears that elevated inflation and higher borrowing costs would slow the U.S. economy.
Spending at restaurants went up nearly 8 percent compared to a year ago as overall retail sales increased by more than 3 percent for that span during the holiday season, preliminary data from Mastercard SpendingPulse showed on Tuesday.
The company compiles spending insights through in-store and online retail sales across all payment methods. It is not adjusted for inflation and covers the period of November 1 to December 24 of this year compared to a similar time frame the year before.
"This holiday season, the consumer showed up, spending in a deliberate manner," Michelle Meyer, Mastercard Economics Institute's chief economist, said in a statement.
American consumers have demonstrated resilience in the face of various economic headwinds that included persistent elevated inflation.
High inflationary prices compelled the Federal Reserve to hike rates to a more than two-decade high. Rates are currently sitting at a range of 5.25 percent to 5.5 percent and policymakers held them at that level for the third time in a row at their meeting earlier this month.
High rates have helped the cost of home and auto loans shoot up and made business investment more expensive. The Fed had instituted higher rates to slow consumers and their spending as a way to arrest soaring prices. Inflation has cooled to 3.1 percent, way lower than its four-decade high of 9 percent in the summer of 2022. Yet, Americans have still been able to keep spending as despite prices falling, companies have retained workers who are more than willing to spend their earnings.
Fed policymakers project that unemployment—currently at 3.7 percent—will tick up slightly above 4 percent next year and inflation is expected to fall to 2.4 percent, they said after their gathering in December.
"The economic backdrop remains favorable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most," Meyer said.
Consumers continue to choose online spending as it saw an increase of more than 6 percent in retail sales while in-store sales showed a smaller 2.2 percent, according to Mastercard SpendingPulse data.
"Spending online is increasing at a faster pace than in-store, therefore taking a growing slice of the retail pie, but shopping in-store still makes up a considerably larger portion of total retail spending," the analysis said.
Americans shopped for clothes the most, up more than 2 percent for the year. Spending on electronics slowed by 0.4 percent for the year, and buyers also held back on splurging on jewelry, which witnessed a 2 percent decline in sales compared to 2022. Grocery spending jumped by a little more than 2 percent.
Consumers were also being savvy about their shopping as they took advantage of early promotions by retailers, said Steve Sadove, senior advisor for Mastercard and former CEO and Chairman of Saks Incorporated.
"Retailers started promotions early this season, giving consumers time to hunt for the best deals and promotions," Sadove said in a statement. "Ultimately it was about getting the most bang for your buck as consumers spent on a variety of goods and services, resurfacing spending trends from before the pandemic."
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Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
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