The dirty secret of America’s holiday shopping season
By David Goldman, Matt Egan, CNN
(CNN) — Americans, enraged about years of rising prices, are going into the 2025 holiday shopping season prepared for battle. But this holiday shopping season could look a lot stronger than you’d expect – on paper, anyway.
How’s that possible?
High-income consumers keep spending like they’ve never heard of this affordability crisis people keep talking about. But middle- and lower-income folks, despite declaring that they’re fed up with their financial situations, are still spending, in aggregate. That’s prompting forecasts for flat or even slightly higher retail sales growth over 2024 – Mastercard forecasts a 3.6% rise in overall holiday spending this year.
But those folks are spending more in part because prices are higher. Stubborn inflation, combined with already-high prices, has forced people to shell out more for the holidays, pushing spending numbers up.
“Holiday shopping is far from full swing, but spending shifts are already surfacing,” said Vicki Hyman, communications director at Mastercard, in a recent report. “Inflation is expected to be a larger contributor to sales growth, as opposed to actual sales volume.”
That’s why holiday shopping data on Black Friday and beyond may give a somewhat rosy picture of the economy, even if headlines fail to expose the ugly side of the economy that has folks so furious.
“Low-income and high-income households are often living in two different worlds – and experiencing two different economies,” Joe Wadford, senior economist at Bank of America Institute, told CNN.
Strong spending. But…
Black Friday through Christmas will test America’s economic strength. Preliminary reports look good: Early-bird holiday shoppers have been out in strong numbers this year, according to a report earlier this month from Bank of America.
Paychecks have grown fatter over the decade, and deposits into Bank of America accounts are higher now than they were in 2019, the bank said. That helped fuel a rise in credit and debit card spending overall, which grew 2.4% per household in October 2025 over October 2024, for the best month since February 2024. Spending has risen for five straight months, the bank said.
Shopping for holiday items was up an even stronger 5.7% over the past year in October.
But here’s the catch: That spending is measured in dollars, not items. The number of shopping transactions that Bank of America tracks has fallen slightly since January.
In other words: Inflation is taking a bite out of Americans’ shopping – and possibly their gift giving this year.
“Consumers are clearly spending more and getting less,” Wadford said.
Some of the spending figures may also be skewed by tariffs.
As Trump’s on-again, off-again tariffs took shape, Americans rushed to buy items like electronics and jewelry so they could get ahead of the increase in prices. That may ultimately lead to lower spending on those items during the holiday season – because many people already bought what they wanted or because higher prices may dissuade some folks from making purchases during the holidays.
The K-shaped economy
Another problem with aggregate holiday shopping reports is that they rarely tell you who is doing the shopping. The details tend to paint a less glossy portrait of the economy than some of the headlines suggest.
For example, the Federal Reserve’s most recent Beige Book, a collection of anecdotes about the economy, showed consumer spending among low- and middle-income consumers is on the decline. They’re increasingly cash-strapped, and they’re looking for more discounts and promotions when they’re shopping.
Meanwhile, the Fed found high-end consumers are continuing to spend – including on luxury items and travel.
That trend is starting to show up in holiday spending reports, too: Lower-income Americans have continued to spend – their credit and debit spending rose 0.7% last month over October 2024, far below annual inflation – Bank of America reported. But high-income Americans increased spending at more than triple that pace.
It’s part of the so-called K-shaped economy, in which higher earners get a boost from their stock market investments and home valuations and use their fatter paychecks to spend. But lower earners increasingly live paycheck to paycheck and look for discounts – or curtail their spending to cope with rising prices.
Those who make $170,000 and above are still spending like crazy – with double-digit growth this year, noted Heather Long, chief economist at Navy Federal Credit Union. But those with more moderate incomes, particularly those with low credit scores, are spending less than they were pre-pandemic.
Bank of America found that wages are only up 1% year-over-year for low-income families. But prices are up 3% as of the September inflation report.
“When your bills are up $300, but your wages are only up $100, what are you going to do?” Wadford said.
For those who are under financial stress, the pressure is mounting.
“It truly is a bifurcated economy,” American Express CEO Stephen Squeri said on an earnings call with Wall Street analysts last month. Squeri noted that American Express customers tend to spend more money than customers with other credit cards – which he attributed to the fact that Amex customers tend to be wealthier.
That’s similar to executives from other consumer brands, including Target, Walmart, Home Depot, Crocs, Chipotle and Coca-Cola, who all noted some degree of consumer pain among folks who make roughly $100,000 or less – and robust consumer spending among those who make more.
It’s one reason a poll published by Fox News this week showed 76% of Americans have a negative view of this economy, up from 67% in July.
“I would call it a K-shaped economy on steroids this holiday season,” said Long. “If you look at the gross spending and gross growth, it looks good. But if you break it down by average spend per cardholder it’s a totally different picture.”
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