Stagnant incomes weigh on holiday shoppers

Holiday shoppers are in more of a spending mood than they were two years ago, but yet another report shows they aren’t rushing to do a lot of gift buying.

Bankrate released a report Monday that shows 38 percent of consumers plan to spend less this holiday season than they spent last year, while 14 percent plan to spend more. Most of the remainder plan to spend the same amount.

Two years ago, the last time Bankrate released a similar report, 42 percent of consumers planned to spend less and 10 percent planned to spend more.

The gradual thaw in spending shows more Georgians and other Americans are benefiting from a strengthening economy, but many are still struggling or are uncertain about their financial situation, according to Greg McBride, Bankrate’s senior financial analyst.

Economists watch consumer sentiment closely because spending drives most of our economic growth. It can, for example, prompt businesses to order more from factories, prompt factories to invest more in operations, and cause those operations to hire more workers, who then have a paycheck to purchase products as consumers.

While more jobs are being created and breadwinners are landing some of the positions, pay remains stagnant for many consumers. Among those who have landed jobs, many are earning less than they did before the Great Recession.

“Stagnant incomes don’t leave people with a lot of extra money that they can throw around on discretionary purchases like holiday shopping,” McBride told The Atlanta Journal-Constitution. He said the tendency to spend less was across all income levels, though more pronounced among incomes less than $50,000.

According to the federal Bureau of Economic Analysis’ most recent data, personal income and disposable income (after taxes) fell in October after rising slightly in September.

A recent Barron’s analysis showed U.S. personal spending has grown about 2 percent since the official end of the recession in 2009, compared with a long-term average of nearly 3.5 percent. Personal income is up less than 1 percent for the first eight months of this year, below a 50-year average of 3.25 percent, according to a recent Barron’s analysis.

According to the National Retail Federation, consumers spent about $1.7 billion less on holiday shopping on Thanksgiving and Black Friday than they did the previous year.

“At the point where people start to see their paycheck grow, then they’ll have both the ability and willingness to ramp up spending,” McBride said. “Right now both the ability and willingness to ramp up spending are hemmed in by the fact that their incomes aren’t growing or aren’t growing as fast as other expenses.”

Consumers, however, appear to be in a better mood about their financial situation, and such confidence is important in driving spending, and economic growth. Bankrate’s study found 25 percent of consumers feel better about their finances while 18 percent feel worse. Two years ago, 22 percent felt better and 29 percent felt worse. Most of the remainder felt about the same.