Year-over-year spending sees its highest increase since November 2023
By Jonathan Silver, CEO of Affinity Solutions
Thanksgiving is a full week later this year, leaving many retailers worried that a shorter, more chaotic shopping season could damper sales. But the October CNBC/NRF Retail Monitor, powered by Affinity Solutions, delivered a welcome gift: a strong retail performance that signals shoppers are spending early and with confidence. This unexpected boost could mean that the later Thanksgiving won’t be the lump of coal retailers feared.
Unadjusted Year-over-year (YoY) spending showed a 4.13% increase, the largest change since November 2023. Additionally, seasonally adjusted total retail spending increased 0.74% month-over-month (MoM), reversing September’s decline. With the Consumer Confidence Index rebounding in October (and hitting its highest level since March 2021), we’re expecting a happy holiday season for retailers.
Let’s take a closer look at what drove the jump in consumer spending in October.
Clothing Keeps Warm
The clothing category continued its 19-month streak of YoY growth, up 8.56%. However, MoM spending declined slightly, falling 0.57%. The dip in MoM sales was likely due to shoppers stocking up on school clothing in September, leading to a slightly slower October.
According to a survey from the NRF, clothing is the second most popular gift request, trailing only gift cards, so we expect spending to grow in this category in the coming months. Notably, the survey also finds 57% of consumers are planning to make their overall holiday purchases online, so retailers should prioritize e-commerce in their holiday sales and marketing strategies.
Durable Momentum
Durables reversed their two-month decline in October, as spending on Furniture and Home Furnishings increased 1.87% YoY. Leading this positive trend was HomeGoods and Costco, which saw Q3 increases of 8.1% and 7.0% respectively. HomeGoods leaned into the “holiday creep” with an early November 1 shopping event to help shoppers kick off the season. We expect this category to see continued growth.
Electronics and Appliances dropped 0.64% YoY, suggesting consumers may be waiting for holiday sales before upgrading their devices. This could mean increased spending in November and December. Mastercard’s 2024 Holiday Spending Forecast predicts a 6.7% increase in electronics spending thanks to stable prices on products from smartphones and tablets to home devices and gaming consoles.
The Building and Garden Supplies category also reversed its decline, up 3.12% YoY and 1.69% MoM in October. This increase may partly reflect the drop in building materials costs and the impact of two major hurricanes in the South. Companies like Home Depot, Lowe’s, and Floor & Decor tend to see a multi-quarter tailwind after major storms so we’ll be watching this category closely.
Season’s Eatings
Both restaurant spending and grocery spending grew in October, jumping 2.07% and 3.76% YoY respectively. That’s particularly impressive, given that food prices were up 2.1% YoY in October, down slightly from the 2.4% YoY increase in September.
While food inflation has come down over the past year, prices remain 20% higher than they were in 2020. Most notably (astonishingly!), the cost of a dozen eggs was up 30.4% YoY in October, and ground beef and milk were up 2.8% and 0.5% respectively.
Recognizing the pinch that consumers are feeling, grocers are offering discounted Thanksgiving meals. Lidl became the latest grocer to offer a discounted Thanksgiving meal by introducing a $45 basket of food to feed 10 people, appealing to cost-conscious consumers.
To remain competitive in the face of stubbornly high food prices, grocers and restaurants should maintain attractive discount offerings throughout the holiday season.
What This Means for Retailers
The inflation rate increased from 2.4% to 2.6% in October, as food, housing, and transportation got more expensive. Despite the increase, the Federal Reserve cut interest rates by a quarter percentage point on November 7th, its second consecutive reduction in the cost of borrowing. The Fed is gradually loosening its grip on the economy as inflation cools and the job market holds steady — though President-elect Trump’s proposed economic policies, like tariffs and tax cuts, risk disrupting that balance.
Still, this holiday season is looking bright, with consumers starting their holiday shopping early, and the NRF predicting that the average consumer will spend $902 across food, gifts, decorations, and other seasonal items. We expect overall retail numbers to increase in the coming months but given the broader, pending uncertainties with a new administration, retailers should remain cautiously optimistic and agile.
