Consumer holiday spending expected to increase this season

Every year, consumers have a tendency to spend more than they probably should when it comes to holiday gifts for friends, family and others, and that trend is expected to continue this year, as the economy follows its path of improvement.

Consumers’ appetites to spend money on gifts during the holiday season is likely larger than it was at this time last year, thanks in large part to improving economic conditions that allow many to feel better about their financial futures, according to the 2012 Retail Report issued by FTI Consulting. Today, consumer confidence is about 25 percent higher than it was at this time last year, and as such, experts project that holiday spending will grow by about 4.5 percent.

Effects of this increase

Given that consumers seem more interested in shopping for the holidays this year, that will likely put more of a strain on many wallets, as millions of Americans are still not yet at the financial standing they achieved prior to the beginning of the recent recession, the report said. This is further complicated by the fact that many retailers, noticing the uptick in shopping interest, are now no longer incentivized to offer larger discounts as a means of attracting more shoppers.

Fewer sales and deals, in turn, means that consumers will likely have to spend more money to get the same types of presents they did last year, the report said. It’s important to note, though, that the 4.5 percent increase in shopping this year is actually a smaller growth than the 6.2 percent in 2011.

Reason for caution?

However, experts also say that the increased deals offered by retailers at that time had a lot to do with the larger expansion of holiday shopping efforts, and that if it were around again this year, spending would likely be far higher, the report said. Further, there has already been some slowdown in spending this year, and retailers didn’t benefit from the discounted prices seen in 2011 as much as they thought they would.

“Overall, consumer spending trends have been fairly impressive considering the financial anxieties still felt by many Americans,” said Bob Duffy, global co-leader of the FTI Consulting Corporate Finance/Restructuring practice. “Despite slowing momentum in recent months and lingering concerns over income growth and employment prospects, sales growth trends have managed to stay within the range of historical averages. We find consumer spending across a number of product and store categories to be fairly encouraging and anticipate this vigor will continue through the holiday shopping season. High-end retailers, as well as deep discount and off-price chains, should perform well in the current environment.”

Could spending be problematic?

The simple truth is that most consumers could boost their spending without having a financial basis for doing so. For instance, though spending should rise 4.5 percent this year, wages in general have not followed, and unemployment remains stubbornly high. While it may be important for Americans to do all they can to ensure their loved ones have a happy holiday season, many may not be able to squeeze all the gift purchases they want to make into their standard monthly budgets.

As such, many will use their credit cards to finance purchases, which in turn can lead to significant debt and endanger their current financial standing. It is for this reason that credit card balances tend to increase in the final few months of every year, and, when January and February roll around, there are typically more instances of delinquency and default from consumers who cannot afford to pay their bills.

High debts and late payments can not only make it more difficult for borrowers to meet all their monthly credit card obligations, but these credit missteps will also have a significant negative impact on their credit scores. These two factors alone comprise 65 percent of a total rating, and carrying too much debt and missing deadlines even by a day can weigh heavily on even a healthy score. Therefore, being sensible about holiday purchases and making sure to buy only what can be reasonably paid back on time and in full is vital to ensuring credit health all year long.

Of course, consumers may also have other difficulties in dealing with their credit score if there are any unfair markings listed on their credit reports. For this reason, borrowers should make sure to order this document a few times a year and check it over carefully for any such entries. If any are discovered, it could be helpful to work with a credit repair specialist, which may be able to resolve the issue in a timely fashion.

Posted in Finance
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