Shoppers are ready to make the most of this holiday season, although they’re still looking for deals

• Shoppers are ready to make the most of this holiday season, but many are still concerned about their budget.
• Lower inflation—and even deflation—gives some shoppers more money to spend on gifts and parties.
• Others may go into debt to pursue their vacation dreams.

Shoppers seem ready to make it through this holiday season, but many still haven’t given up on their search for bargains.

Multiple signals suggest some shoppers are feeling less financially strapped as the biggest shopping season of the year approaches. U.S. retail sales were slightly better than expected in October, and prices for many items, including gifts themselves and many essentials such as gasoline, are rising at their slowest pace in years.

But customers still remember prices were lower four or five years ago, Claire Tassin, a retail and e-commerce analyst at Morning Consult, told Business Insider. So many are looking for deals, as they have been doing for most of this year, while continuing to spend money during the holiday season.

“There is still a desire to find cheaper alternatives where possible,” Tassin said.

This summer, retailers and consumer brands reported that shoppers — even wealthy ones — were cutting back on their spending as prices remained high.

However, many consumers did not stop. Rather, they were trying to get more for their money—for example, buy clothes at an inexpensive store like Nordstrom Rack rather than one of the retailer’s department stores.

According to a Bank of America Institute report released last week, there are some signs that consumption conditions have improved since then.

The University of Michigan Consumer Sentiment Index has been rising gradually since July. In October, the figure reached its highest level since April. Credit card spending in states hit by Hurricanes Helen and Milton rebounded in the weeks after the October storms, the report found.

Inflation on some essential goods, such as food, has slowed over the past few months, while on others, such as gasoline, it has even turned into deflation, according to the report. In theory, this means shoppers have more money to spend on discretionary purchases such as eating out and buying gifts.

“Is the apparent increase in consumer spending temporary? Potentially, but there are reasons for optimism,” the report said.

Friday’s increase in retail sales showed “a good early move toward the holiday shopping season,” said Jack Kleinhenz, chief economist at the National Retail Federation. Sales in October were up 0.4% on a seasonally adjusted basis compared with the same period last year, according to the U.S. Census Bureau. The bureau also revised upward its sales figure for September.

“Falling energy prices have likely increased household spending on retail goods,” Kleinhenz said.

Walmart and Target, which posted different results this week, provided evidence that consumers are still spending money (albeit cautiously) ahead of the holidays.

Walmart CEO Doug McMillon said Tuesday that the chain increased its share as shoppers with household incomes of more than $100,000 continued to visit its stores. Buyers “continue to look for value to maximize their budget,” said CFO John Rainey. The company raised its forecast for the remainder of the fiscal year.

However, Target cut its forecast for the remainder of 2024 on Wednesday after the chain said shoppers would reduce discretionary purchases in the third quarter. Chief Commercial Officer Rick Gomez said Target is slashing prices on 2,000 items and offering affordable gifts such as a selection of holiday toys, half of which cost less than $20.

Many prices are still higher than they were before the pandemic, Morning Consult’s Tassin said. This could push many consumers to look for value when buying gifts or planning holiday parties this year.

But according to a Morning Consult survey conducted in late August and early September, a clear majority of shoppers are willing to spend money on gifts, food and drink, and parties during the holidays this year. Some were even willing to go into debt or cut spending on essentials to afford the holiday, according to the survey.

“People are feeling financial pressure, but that doesn’t necessarily mean they’re not going to spend,” Tassin said, adding that people may want to cut back on spending in other areas to ensure they have enough money for their vacation plans.

“I’m going to focus more on sales or buy cheaper meat options so I have a little wiggle room to afford other things,” she said.