The holiday season is upon us, and with it comes questions about our shopping habits. How many people are on your holiday shopping list this year? Are you planning to splurge or hunt for bargains? Will you stay within your budget or take on debt?

These questions, while seemingly personal, hold significant implications for economists and analysts as they provide insights into consumer spending trends during the holiday season and their broader impact on the U.S. economy. While holiday purchases represent a relatively small portion of the overall economy, they play a vital role in driving consumer spending, which accounts for over two-thirds of the United States’ Gross Domestic Product (GDP).

Mickey Chadha, Vice President of Corporate Finance at Moody’s Investors Services, notes that holiday spending data offers valuable insights into the mindset of consumers. He emphasizes that it serves as a barometer not only for consumer behavior but also for the health of the retail industry. For many retailers, the holiday shopping season is a critical period when the bulk of their annual profits are generated.

Amid economic challenges, such as the ongoing pandemic, the employment rate plays a significant role in influencing consumers’ spending habits. In times of economic prosperity with low unemployment rates, consumers are often inclined to be more liberal with their holiday spending. Conversely, during economic downturns characterized by higher unemployment rates, consumers tend to be more cautious, cutting back on their overall spending, including holiday purchases.

However, recent data indicates that the U.S. consumer appears to be in a robust position. Adobe Analytics reported record-breaking online sales of $9.8 billion on Black Friday, a 7.5% increase compared to the previous year. Cyber Monday saw even stronger numbers, with consumers spending $12.4 billion, marking a 9.6% year-over-year increase.

Despite these positive figures, some experts anticipate a potential slowdown. This year, the forecast for holiday sales growth in the United States is projected to be 3.3%, down from 6% the previous year and below the pre-pandemic average of 3.9%. Analysts from S&P Global Market Intelligence suggest that this slowdown may be attributed to cooling inflation and deflation, which are particularly noticeable in popular goods categories such as toys, electronics, and apparel.

Consumer spending data for Black Friday also revealed that consumers were exploring more cost-effective alternatives, a trend referred to as “trading down.” Shoppers opted for lower-priced goods, reflecting a sense of frugality that experts attribute to what they term “inflation fatigue.”

While holiday spending data is valuable, it is just one of many factors shaping the U.S. economy. Experts emphasize that it does not represent the state of the entire economy. Nevertheless, it provides a glimpse into where economic growth may be heading in the coming year. As holiday sales data sets the tone for economic growth expectations, experts anticipate some moderation in spending across various goods categories.

Despite potential challenges in consumer spending growth, economists are not necessarily predicting a recession in the near future. Factors such as historically low unemployment rates and the financial stability of many consumers, especially those with low mortgage rates, continue to bolster optimism about the resilience of the U.S. economy. While the economic landscape may present challenges in the year ahead, it is not without room for growth and adaptation.