Will Americans Have the Confidence to Spend Freely This Holiday Season?

source: http://www.flickr.com/photos/68751915@N05/

source: http://www.flickr.com/photos/68751915@N05/

Americans appear to be bracing themselves for economic headwinds this holiday season. Gallup reports that its index of economic confidence fell from -24 to -26 in the week ended November 24, its first decline in five weeks. The Index hit a low of -39 in October during the final days of the partial government shutdown and debt-ceiling standoff, and at -26 the index suggests that economic confidence has not yet returned to pre-shutdown levels.

Gallup’s index of economic confidence climbed as high as -3 in June of this year before beginning a summer-long decline that culminated in the fiscal impasse in Washington. The index declined to -10 in August and by the beginning of October, as the bad mojo really began to brew, fell to -22.

Gallup’s headline Economic Confidence Index is a composite of Americans’ assessment of current conditions and future expectations, and has a theoretical minimum score of -100 and a theoretical maximum of +100. At negative levels, the index suggests that more Americans are pessimistic and present and future economic conditions than are optimistic. The current net economic outlook for future conditions reflects 34 percent of respondents who believe economic conditions are improving, and 68 percent who believe they are getting worse.

Increases and decreases in economic confidence can generally be linked to increases or decreases in consumer spending. The less confident consumers are, the less they tend to spend — and vice versa. With the index about 14 points below where it was at this time last year, this means that consumers could be reducing their holiday spending this year.

A separate survey conducted by Gallup confirms this expectation. Consumers report that they plan to spend $704 on Christmas gifts this holiday season, down from $770 last year and well below the $786 that they predicted they would spend in October.

Gallup Holliday Spending

Source: http://www.gallup.com/poll/165872/americans-trimming-holiday-spending-plans.aspx

However, Nielsen forecasts that consumer spending will increase about 2 percent this holiday season, with 30 percent of consumers planning to spend between $250 and $500, 20 percent planning on spending between $500 and $1,000, and 6 percent planning on spending more than $1,000. Deloitte reports that consumers with household incomes below $100,000 expect to spend an average of $854 this holiday season, up 8.1 percent on the year. Total holiday spending is expected to increased 12 percent.

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