Could holiday shopping cure U.S. election blues?

With our nation anxiously awaiting the results of the upcoming presidential election, retail spending is feeling the pinch.

It’s common to see consumers pull back on large, discretionary expenses in the runup to a presidential election due to the uncertainty over who will assume the presidency and what economic agenda they will enact, and this year’s especially fraught election is no different. But some marketers warn that this consumer caution threatens holiday shopping too. 

“It’s not a massive pullback [in consumer spending],” says Elizabeth Marsten, vice president of commerce media at Tinuiti, a performance marketing agency. But it’s been enough to have a sizable impact on brands’ retail performance.

The average order value for Amazon Prime Big Deal Days on Oct. 8 and 9, the unofficial kickoff to the holiday shopping season, was down by approximately 12% this year compared to last, Marsten explains. The retail categories with the most significant drops in revenue were apparel, electronics, and home and garden goods, a slowdown Marsten attributes to “deal fatigue.”

Brands are having to spend more on retail media to generate the same amount of sales as last year, Marsten adds. The average cost per conversion increased by more than 25%, meaning a lower return on ad spend.

Jason Goldberg, chief strategy officer at Publicis, reports a similar slowdown in nonessential spending categories, such as building materials and luxury goods. “It’s expected with the election,” Goldberg says.

Ad budgets have remained steady, says Goldberg, but now retail brands have to compete with political ads for consumer attention, which might be driving up the cost per conversion for retail advertising.

The slow start to the holiday season might run deeper than just the political climate, however. “The election is just one headwind on holiday spending,” Goldberg says.

The “vibecession”

The confounding aspect to this is that, despite all the hand-wringing about the election and inflation, consumers continue to spend at a healthy clip and the economy continues to grow. The U.S. economy increased at a 2.8% annual rate in the third quarter, the tenth consecutive quarter of growth, as the Department of Commerce announced on Oct. 30. Yet the rate of growth was below the 3.1% estimate and less than the 3% growth in the second quarter, suggesting the consumer spending might finally be slowing down due to inflation.

Consumers continued to spend heavily both during and after the pandemic despite record inflation rates, a phenomenon that baffled some economists and caused the Federal Reserve to raise interest rates to cool spending. To make matters more confusing, consumer sentiment during this period was exceptionally low for an otherwise healthy economy.

“Consumer finances look pretty strong, but consumer sentiments look pretty weak,” J. Walker Smith, consulting knowledge lead at market research firm Kantar, tells The Current. 

Smith points to the University of Michigan consumer sentiment survey, which has been below 70 points for much of the past several years. Historically, consumer sentiment only dips below 70 during recessions.

This confusing set of economic factors has been dubbed a “vibecession” — years of inflation have left consumers with a bad feeling about the economy despite a number of other positive economic indicators.

The election only heightens those worries and could influence fourth-quarter spending. (The decrease in Amazon Prime Day deals referenced above occurred after the Commerce Department’s recent analysis of consumer spending and is not reflected in the department’s most recent figures). 

A reduction in consumer spending can also be part of the long-awaited response to higher prices. The Federal Reserve cut interest rates in September for the first time since 2020, suggesting that consumers are finally decreasing their spending due to the higher cost of goods.

Smith adds that a lot of the gains in consumer spending the past several years have been driven by high-income households, which increased their spending significantly relative to middle- and working-class consumers. Now that there’s a reduction in spending on high-end items, overall consumer spending might finally regress. “A lot of what we’re seeing is a return to normal spending levels,” he says.

A post-election holiday spending bump?

Fortunately for all of us in the U.S., the election cycle will not last forever. The question remains whether consumer spending will rally after the election to make for a strong holiday shopping season.

Goldberg warns that an election hangover could continue to haunt holiday spending after Election Day. The polls indicate a dead heat between the two candidates, and it might take days, if not weeks, for all the ballots to be counted and a winner announced. Even then, it’s possible that the results of the election will be contested and that the consternation over presidential politics will drag on into the new year. Even if a winner is announced, there’s no guarantee that consumers will be eager to spend.

“Spending will partly come back after the election, with a compressed holiday schedule, but it won’t be enough to make for a good, profitable holiday overall,” Goldberg says. “After the election, 50% of the population will still be anxious and depressed.”

Smith, however, is more optimistic, pointing to the fact that consumer finances remain strong. Wages continued to increase in the third quarter, giving consumers enough disposable income to make their usual holiday shopping sprees. This pent-up demand could be unleashed after the election, making up for the slow start.

“The puzzle for marketers is how do you get people out of this funk,” Smith says.

One answer, according to Smith, is to give brands a sense of normalcy and a much-needed break from political news. For a few years, it was fashionable for brands to make public statements about social issues, but that’s no longer the case. The political and economic volatility of the past few years has left consumers fatigued and wanting a sense of normalcy from brands. “Consumers are saying, ‘I just want brands to be brands,’” Smith says.

And what better time for shoppers to find solace in brands than during the holidays.