You made an effort to create a holiday budget. You attempted to save enough money for it. You aimed to avoid overspending. You resolved not to accumulate debt.

Yet, you were only successful in one of those goals: you did create a holiday budget, but ultimately, you exceeded it.

Now that it’s January, you’ve set a new goal for yourself: to refrain from spending altogether.

A wealth of monthly shopping data from the U.S. Census uncovers the hidden habits of consumer spending in America: every December, we splurge as if there’s no tomorrow, while every January, we face the repercussions.

In 2023, spending was at its lowest in the first two months with $510 billion in January and $489 billion in February, whereas December saw the highest spending at $636 billion.

For January and February 2024, retail spending dropped to approximately $519 billion each month, before picking up in March as consumers returned to shopping.

Shoppers Indulge in December, Go Easy in January

This annual trend is consistently reflected in data from the Census Bureau’s Monthly Retail Trade Survey.

(To illustrate the fluctuations more clearly, we excluded car sales from the analysis and didn’t adjust for seasonal patterns, as those variations are integral to the findings.)

“People really spend during the holiday season, but then it often plummets in January,” noted Tim Quinlan, a senior economist at Wells Fargo. “Post-holiday, credit card bills arrive and many have overspent.”

In a scenario where budgets are perfectly balanced, consumer spending shouldn’t drastically decrease in the first couple of months after the holidays.

In such an ideal world, we would set a holiday spending limit, save a bit each month toward it, distribute our shopping over the year instead of cramming it all into December, stick to our budget, and make purchases only in cash, avoiding credit altogether.

Did Americans Exceed Holiday Budgets in 2024?

However, early reports indicate that many Americans exceeded their holiday budgets in 2024.

Total holiday spending rose from $222 billion in 2023 to $241 billion in 2024, as per Adobe’s estimates.

This total includes $18 billion spent through buy now, pay later options, a form of short-term borrowing that lets consumers pay gradually.

“Many consumers are relying on credit, and now they’ll face the consequences,” explained Donna Hoffman, a marketing professor at the George Washington School of Business.

With credit card interest rates at record highs, the average cardholder with a balance owes about $7,236, according to LendingTree.

As debt mounts, experts predict another sluggish January for retail shopping.

“I wouldn’t be surprised if we notice an even steeper decline, with people becoming more cautious with their spending,” commented Derek Rucker, a marketing professor at Northwestern University’s Kellogg School of Management.

Why Spending Drops in January

The decrease in spending during January and February is influenced by several factors, according to Randy Allen, a senior lecturer in strategy and business economics at Cornell University.

“Travel activity is low in January and February,” she stated. “There aren’t many significant holidays other than Valentine’s Day, which doesn’t generate substantial spending.”

Retailers often stock up on inventory during the last months of the year in anticipation of the holidays, including Thanksgiving, Hanukkah, Christmas, and New Year’s, leading to a significant drop in inventory by January.

Additionally, marketers typically reduce sales and promotions in the new year. “They don’t offer the most enticing deals,” Rucker noted.

All these factors, combined with any feelings of guilt and exhaustion from holiday shopping, create a situation where consumers are less likely to spend in January and February.

“The drop reflects a sense of guilt,” Allen noted. “Plus, there’s the fatigue of shopping.”

January is also notorious for being the month with the highest return rates.

“We call it Return-uary,” commented Gaurav Saran, founder of ReverseLogix, a returns platform.

Retailers usually experience losses when customers return items, although they may attempt to recover those losses by encouraging further purchases.

“Nobody gets a warm welcome when returning an item,” Saran noted.

Consumer spending typically rebounds in March as people begin to plan for Spring Break, graduations, weddings, and summer vacations. From March to October, monthly sales tend to stabilize at a more “normal” level, before the holiday spending cycle begins anew in November.

Will Prime Day Alter the Shopping Cycle?

Some analysts suggest that the seasonal spending cycle may not be as drastic as it once was.

Wells Fargo projected that holiday sales would increase by only 3.3% in November and December 2024, relative to the previous year. This rate is lower than the historical average.

“While December remains the most significant month for retailers, its prominence is declining,” wrote Quinlan and his colleagues in their 2024 Holiday Sales Outlook. “While it still holds the largest portion of sales for the year, a decreasing share is taking place in December annually.”

Quinlan attributes this to online shopping enabling consumers to make purchases throughout the year.

“There’s one clear reason for that: Prime Day,” he stated.

Amazon organizes annual sales for its Prime members, usually in the summer and fall months.

“Other retailers also jump on this bandwagon,” Quinlan added, saying they provide incentives for spending during typically slower summer months.

He believes that as a result, the online shopping landscape will gradually smooth out the traditional seasonal sales cycle.

Not all retail experts share this view, though.

While Prime Day “may soften” the spending cycle, Allen argued, “I don’t think it will dismantle it altogether. Most shoppers aren’t considering their Christmas lists when Prime Day comes around.”