A Shift in Spending Habits
A subtle but significant shift is taking place in the American economy: consumers are starting to hold onto their cash. For a nation historically defined by a willingness to spend and accumulate debt, this newfound frugality is flashing a warning signal. This hesitation comes at a critical juncture as the country enters the traditional “Holiday Season,” a commercial marathon stretching from Thanksgiving through New Year’s Day. While families prepare to blend traditional celebrations with the commercial rush of Black Friday and Cyber Monday, the economic backdrop is far more precarious than in previous years.
Tariffs Hit Supply Chains
Retailers are facing a harsh reality regarding inventory. While US corporations initially stocked up on international goods to beat the implementation of new tariffs, those warehouses are now largely depleted. Replenishing stock now means importing at significantly higher costs. Abercrombie & Fitch, parent company of the Hollister brand, has already reported that its business—particularly in the expensive youth fashion sector—will take a $90 million hit this year solely due to these duties.
Samuel Kortum, an economics professor at Yale, notes that these tariffs do not merely adjust trade balances; they fundamentally shift the burden. While the federal deficit might decrease, the mechanics of the market mean that prices are rising faster than consumption. Ultimately, it is the American consumer who is left bearing the economic cost.
The Holiday Stress Test
Despite these headwinds, the retail machinery is gearing up. Millions of employees are expected to take Friday off, lining up outside electronics and clothing stores with their families to hunt for bargains. The momentum will attempt to carry over into the workweek, where office workers from New York to Los Angeles will likely spend a portion of their day chasing deals online.
However, data from The Conference Board suggests a widening gap in who is actually doing the spending. Private consumption is increasingly being sustained by high-income earners, while broader segments of the population are cutting back on expensive purchases. This caution is reflected in corporate forecasts; while Abercrombie & Fitch saw a seven percent revenue bump earlier in the fiscal year, they project no further growth for the holiday quarter. Electronics giant Best Buy is even more pessimistic, expecting only one percent growth—a figure that, when adjusted for an inflation rate of roughly 2.8 percent, represents a decline in real terms.
The Government Shutdown’s Legacy
The national mood has also been dampened by the recent political standoff in Washington. A dispute over the federal budget left approximately 1.4 million federal employees without pay for six weeks. While the government has reopened, many of these workers are still financially recovering from the time without a paycheck.
This “shutdown” has also created a statistical blind spot. The Bureau of Economic Analysis has not released fresh data on consumer behavior or inflation, leaving analysts dependent on private surveys and individual corporate reports to gauge the economy’s health.
Producer Prices and Energy Costs Rise
The limited data available points to rising inflationary pressures. Following a delay caused by the 43-day government impasse, the Labor Department reported that US producer prices rose by 0.3 percent in September, reversing a slight decline seen in August. Year-over-year, prices are up 2.7 percent compared to September 2024.
Energy costs were the primary driver, surging 3.5 percent and accounting for two-thirds of the increase in goods prices. Experts view these figures as confirmation that manufacturers are beginning to pass the costs of tariffs implemented by the Trump administration on to their customers. Economists warn that this transfer of costs is likely to further fuel inflation in the coming months.