Equifax Market Pulse: Preparing for the Upcoming Holiday Shopping Season

AS AMERICANS PREPARE FOR GIFT GIVING AND MERRIMENT THIS HOLIDAY SEASON, will Scrooge get his way with a deceleration in consumer spending? As inflation and economic uncertainty bear down on the nation, experts in the latest Equifax Market Pulse webinar break down what the macroeconomic, consumer credit and 2021 holiday spend trends could mean for the upcoming holiday season.

 

Labor and housing markets show cracks as questions of a recession loom 

With a myriad of factors jarring the U.S. economic system – and many consumers’ wallets stretched thin – the question remains: are we in a recession? As Dr. Robert Wescott, President and Founder of Keybridge shared, according to the National Bureau of Economic’s assessment, the answer is currently no. 

However, apprehensions are in overdrive, with growing signs in the last quarter of 2022 that a recession – or at least a “growth pause” – is coming. The U.S. Bond Yield Curve is nearly inverted per interest rate hikes, and the Index of Leading Economic Indicators has started to hook down. The Federal Government’s commitment to addressing inflation could mean steeper than expected interest-rate hikes that may reach 4.5 to 5 percent by February 2023. 

“Inflation is becoming embedded in the economy,” said Wescott. 

Reacting to the hikes, Wescott shared that the housing sector and labor market are showing cracks. Although the unemployment rate remains low, the ratio of open jobs to unemployed workers is dipping, as job openings have declined, even for in-demand skills like software developers. Meanwhile, new residential housing starts have dipped since April 2022, and Wescott expects to see housing slow down even more in the next few months. 

Amid inflation and with COVID-19 relief checks spent, disposable income is also down. With U.S. households dipping deeper into their savings to maintain spending, and the personal savings rate now at a 10-year low, consumer sentiment has dropped sharply. At the same time, as supply chains fully recover, retailers could soon be facing surplus. 

 

How today’s economy is impacting consumer credit

As he shared during the prior Market Pulse webinar in September, Tom Aliff, Risk Advisor Leader at Equifax maintains this is still one of the healthiest credit environments we’ve seen – but that doesn’t mean consumers aren’t starting to feel the pain. 

“There are consumers that are experiencing a more personal level of recession at the micro level,” said Aliff. “These challenges can be addressed proactively.”

Bankcard credit limits on new originations are now above pre-pandemic levels, with subprime share growing steadily, and the number of new cards originated above all prior year levels. Unsecured personal loan originations balances are at all time high levels; subprime share has been declining steadily, and the number of new loans originated is also a new high. First mortgage originations are coming down from the 2021 boom, with  auto originations moving up on a dollar basis and the number of loans lowering. The overall growth is coming from higher amounts being financed versus more loans. 

Aliff also shared that revolving debt in August 2022 is seasonally above 2019 levels, and non-revolving debt is continuing to rise. Mortgage debt is at $11.7 trillion while non-mortgage debt has returned to keeping pace with an increasing trend aligned to pre-recession. Meanwhile, credit limits and utilization have started to slowly increase for both bankcard and private label card. Auto delinquencies are rising, but bankcard and private label delinquencies are below pre-pandemic levels, and first mortgage delinquencies remain historically low.

 

Holiday season brings slower growth expectations in retail while travelers continue to make up for lost time

What might this all mean for the upcoming holiday season? Mike Spriggs, Director of Product Development, Data & Analytics Solutions at Fiserv shared his insight – with expertise using market research and consumer demographic data to optimize sales and market penetration – on what this could mean for retailers planning holiday spend. 

As Spriggs shared, spending during the 2021 holiday season did not follow established norms. Merchants offered promotions earlier than usual to capitalize on demand and mitigate supply chain misses, while “doorbuster” events and overnight lines ahead of Black Friday were almost completely absent. However, when looking at an expanded definition of the “holiday” selling period, spending growth was strong. 

Moving into this year, Spriggs shared that overall spending has slowed down, driven largely by retail. Consumers are also demonstrating different priorities in 2022 compared to pre-pandemic spending – as they make up for lost time, there’s more focus on experiences and less on goods, and travel and related spending are expected to continue to expand. At the same time, they’re also shopping more online, and the 2021 extended shopping season is expected again this year. 

Overall, the 2022 US Retail Holiday expectation should be slower growth compared to last year. High inflation plus low consumer sentiment and employment confidence will have an impact on consumer spending.