Shoppers are still cautious heading into 2025

• Shoppers spent cautiously during the holiday season.
• There are some signs that consumers could feel better about spending more in 2025.
• But tariffs and a dip in consumer confidence paint a more ominous picture for the new year.

Shoppers are entering 2025 cautiously after years of escalating prices and amid worries about the impact of potential tariff increases under the incoming Trump administration.

The holiday shopping season showed once again that customers are willing to spend — but only if the price is right. Shoppers could become less price-conscious as the year goes on, however, if inflation doesn't pick up its pace again.

"This holiday season, we saw consumers motivated by deals and retailers respond with promotions to meet the demand," Steve Sadove, a senior advisor for Mastercard and former CEO of department store Saks, said as part of the Mastercard SpendingPulse survey.

Released the day after Christmas, the survey showed that US retail sales grew 3.8% between November 1 and December 24.

Optimism among consumers reached its highest point since before the pandemic in the fourth quarter of 2024, McKinsey's ConsumerWise survey found.

The survey also showed that, despite their stated optimism, shoppers were planning to spend the same or less on most products, other than holiday-related categories such as toys, than they did during the third quarter. That indicates an ongoing tough environment for retailers.

"Consumers may have reported feeling more optimistic in the fourth quarter, but that does not mean they intend to spend more as a result," McKinsey said in the survey.

Going into the holidays, Costco members were being "very choiceful about how they're spending the dollars," CFO Gary Millerchip said on an earnings call in December.

But Millerchip also pointed to robust spending on optional items, such as jewelry and sporting goods, as holiday shopping ramped up. "It reflects the fact that our members are willing to spend as inflation comes down," Millerchip said.

If price increases do continue to slow — a tailwind that Goldman Sachs expects will continue in 2025 — consumers could feel better about spending more.

But there are also signs that things could get worse.

Just before Christmas, consumer confidence fell near levels usually associated with an imminent recession as many shoppers worried about their future incomes and the cost of living.

Another round of tariffs on imports into the US from the incoming Trump administration could also raise prices for shoppers if manufacturers, retailers, and others pass the costs to consumers.

So, even though the Mastercard SpendingPulse survey pointed to a fairly happy holidays for shops and shoppers alike, the new year still looks uncertain for both groups after a tricky 2024.