Nov 15th

Portfolio Management and a Winter Chill

The 2022 holiday spending forecast and why this year will be different than last

It’s that time of year when Americans are making their lists and checking them twice, but for the 2022 holiday season, many will be slimming down their spending. “I don't think there's any question that holiday spending will be slower this year,” says Whittier Trust Senior Vice President and Senior Portfolio Manager Teague Sanders, a phenomenon that will impact every socio economic segment. Here are some of the reasons why we’re likely to see a chilling effect on holiday spending for the 2022 season. 

Most consumers have already made their sizeable pandemic purchases 

Late 2020 and 2021 were big years for consumers making durable goods purchases such as new washers, dryers and other appliances, as well as automobiles. “These one-time, large expenses have all mostly been bought,” Sanders explains. “Once you’ve made such a purchase, you don’t have to buy it again anytime soon.” There was somewhat frenzied buying activity around these categories due to supply chain disruptions and the early part of the pandemic when many consumers were saving money thanks to stores being shut down. 

“That wealth effect has begun to diminish. We have also seen some slowdown in home prices, amid higher interest rates, higher borrowing costs and depletion of a lot of the excess savings that was sitting in people's bank accounts for the last 18 months,” Sanders says. “There’s simply less of an inclination, across all demographics, right now for people to go out and spend.” 

Luxury travel and goods might be somewhat exempt from the downturn

However, for the top echelon of income earners in the United States, some categories of holiday spending might be less impacted by lower spending. The pandemic era saw the introduction of a trend called “revenge travel”—essentially where consumers were taking their bucket list trips (often more than one) as a reaction to being cooped up at home for months on end. While this spending trend is slowing some, certain segments of the population are still booking high-end, luxury trips to faraway destinations. 

“Two areas that are proving to be more resilient are ultra-high-end luxury goods and airline prices,” Sanders says. “While portfolios of these consumers are down perhaps 18 to 20%, demand continues to remain robust owing to an increased wealth effect and supply demand imbalances respectively.” 

Plan to spend wisely 

No matter how much money you have, it pays to be wise with it. “Even when people have a larger pool of funds to pull from, they tend to still be rational in their purchasing decisions. They're just rational in slightly different ways,” Sanders says. When the vast majority of the country thinks about a large purchase, it might be a home appliance, but when ultra-high-net-worth individuals consider a sizable purchase, the scale is much larger. 

While most Whittier Trust clients have a strong understanding of how wealth works, advisors make it a point to keep an eye on every facet of their clients’ portfolios. “We’re not doing our job if we're not counseling people on the direction of borrowing costs and where expenses are likely to run,” says Sanders. With higher interest rates and increased costs of just about every good and service, everything is pricier in 2022. 

While those things may not immediately impact someone’s lifestyle, the Whittier team realizes that wealth is just one important facet of a person’s overall peace of mind, and it can be emotionally charged. “When we counsel people, we take their thoughts and emotions into account as we make our recommendations,” Sanders says. “That approach is really helpful because our clients see what's going on in the world around them. No matter how wealthy someone is, it’s important to be empathetic and realize that what’s going on in the world at large is impacting them too.” 

Practical implications for this holiday season and beyond

Some people might be thinking about whether the gifts they’ll receive this holiday season will change, but more broadly, decreased spending can have significant implications for markets overall. 

“Consumer spending is 60 to 70% of GDP growth in the United States, so consumer sentiment matters quite a bit,” says Sanders, who notes that recent Google Trends reports—a predictor of what’s on people’s minds—have seen a sharp increase in searches for the word “inflation.” Higher prices on everything from gas to groceries tends to dampen consumer spending. “It really impacts your emotional state because those sharp price hikes are disconcerting,” he explains. 

His advice? Take a deep breath and keep an eye on the long game you’ve agreed with your wealth management advisor. “Adjusting to the new normal is going to take a little bit of time, because there's been an entire generation of spenders who have really known nothing besides zero interest rates,” Sanders says. Markets are fluid by nature, and the right advisors and advocates can help you weather the storm.  

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