• by Todd Wasserman , Staff Writer, October 31, 2022

As the holiday season gets underway, there are some signs that shopping activity is likely to be muted.

While a study by Smartly.io, conducted by Dynata, showed that 45% of shoppers are planning to budget less or spend more cautiously on holiday gifts this year, Mattel has also lowered its full-year profit forecast, per CNBC, and 3M warned of weak spending as it cut its full-year forecast, according to Reuters.

There are two culprits for the spending pullback: inflation and fear of a recession.

Inflation challenges consumer confidence as it takes a toll on household budgets. The consumer confidence index fell to 102.5, according to data released by the Conference Board. A reading above 100 signals that consumers have an optimistic attitude toward the economy. In February 2020, the reading was 132.6.

Despite such reports, consumer spending rose by 2% in inflation-adjusted terms in the second quarter, according to the U.S. Bureau of Economic Analysis.

In other words, so far consumers have been mostly nonplussed about the rise in inflation. A Deloitte report, for instance, found that households planned to spend $1,455, on average on holiday gifts this season, about the same as last year.

Some reports suggest that while holiday spending will be relatively strong, it will be a “final gasp” before the economy falters.

A recent poll by SAP found that three-quarters of those surveyed believed a recession was coming within the next year. Other surveys place the odds of a recession at between 65% and 100%.

So some consumers undoubtedly see this holiday season as a final patch of free spending before the recession hits. That’s all the more reason to drink that eggnog.