Consumers Lose Ground in Holiday Shopping Season Even as Paycheck Stress Briefly Eases

As the annual holiday shopping ritual ramps up, consumers’ finances are less robust than they might appear.

Last month, PYMNTS Intelligence surveyed more than 2,100 U.S. adult consumers for the most recent installment of the New Reality Check: The Paycheck-to-Paycheck Report series, “ Income Instability is Redefining the Paycheck-to-Paycheck Economy .” The report revealed that in October, the share of consumers living paycheck to paycheck dipped 4 percentage points from the prior month, to 65.5%. That’s roughly 171 million out of 261 million adult consumers.

Among the 2 in 3 Americans caught in this financial lifestyle, there are three groups, and those in the first are in trouble.

The first group covers people whose paychecks fly out the door the month they come in due to economic necessity as they pay needed items like housing, utilities, groceries, healthcare, childcare and minimum credit card payments. Some 110 million individuals, or 42% of all adult consumers, lived this way in October, a rise from 36% in August.

The second group covers people who live paycheck to paycheck by choice, perhaps making discretionary purchases that, when combined with paying for essentials, max out their monthly income. Roughly 76 million individuals, or almost 3 in 10 consumers, lived this way last month, roughly the same as the 28% in August.

The third group covers people who live paycheck to paycheck partly by necessity, partly by choice, and thus have at least some control over their spending choices. Seventy-three million individuals, or 28% of all consumers, lived this way in October, down from 36% in August, suggesting they exercised greater control of their spending.

The figures revealed nuances in how most of America experiences pocketbook pressure, as well as how they shop and pay. The overall decrease in those living paycheck to paycheck came primarily from the sub-group of people who live that way by necessity and choice. By contrast, the spike in consumers who live that way solely out of necessity, who struggle to meet their essential monthly costs, spiked. In short, the overall decrease masks financial precarity for more than 4 in 10 Americans.

So, it might seem that as the year-end shopping season kicks into full gear, the overall decline in the number of paycheck-to-paycheck consumers means more people have more dollars to spend. That would be misleading. What’s clear is that the number of people living paycheck to paycheck out of necessity is higher since the end of summer.

The Great Dial Back

Recent dip aside, the share of consumers who spend their paychecks the same month they receive them was up 5.5 percentage points compared to two years ago, long before the President Donald Trump administration’s global tariffs regime unfolded in April. The share who struggles to pay essential bills was up 3.2 percentage points over that period.

More than half of all consumers reported feeling pressure from increasing daily living expenses and putting off larger purchases and saving, the new PYMNTS report found. The pain wasn’t confined to low-income individuals. One-quarter of respondents in the report had an annual income of at least $150,000. Nearly 1 in 5 were in the $100,000 to $150,000 range. Some 28% were in the $50,000 to $100,000 range, and 27% earned less than $50,000 a year.

Pressure All Around

On the one hand, financial stress has grown due to higher prices on imports, from toys and furniture to beef and electronics. The United States’ reciprocal tariffs on most nations will cost the average household $1,200 this year and $1,600 next year, the conservative-leaning Tax Foundation said.

The levies are the highest since 1934, when new tariffs were introduced to help farmers and manufacturers leveled by the Great Depression, according to The Budget Lab at Yale .

On the other hand, other macroeconomic factors are also at play.

The Consumer Price Index rose an annualized 3% in September, according to data from the Bureau of Labor Statistics . However, some core expenses, like housing, utilities and medical care services, spiked more.

The overall picture is one of mounting financial pressure. The PYMNTS report, which fielded a new set of questions, found that amid tariffs and rising living costs, 62% of all U.S. consumers had cut back their everyday spending, including 70% of baby boomers and seniors and half of Generation Zers.

Tighter pocketbooks mean less cheer for retailers during their biggest selling season of the year. The Conference Board projected a 6.9% decrease in holiday spending this year, with the average consumer planning to splash out $990 on holiday gifts, décor, food and other seasonal items, down from $1,063 last year.

Useful is in.

“More consumers are shopping early and opting for practical gifts to avoid last-minute shipping costs,” said Kelly Vincent , chief product officer at Auctane , a shipping and logistics company based in Austin, Texas.

The Rearview Mirror

When Americans look at their pocketbooks, bank accounts and monthly credit card statements, their two-year decline in financial stability likely feels more relevant than any monthly improvement.

The peak-end rule of behavioral psychology shows that people tend to recall events and experiences at their maximum intensity, rather than in terms of how they later soften or end. If struggling consumers improved their finances slightly in the last month but things worsened for them over the last couple of years, people may cling to a cloudy outlook.

In the longer view, matters are looking worse for some consumers. By October, the share of consumers living paycheck to paycheck out of necessity, rather than as a result of discretionary spending, had spiked roughly 14 percentage points since the start of the year, including 3 percentage points in September alone.

The National Retail Federation anticipates an increase in holiday spending this year to more than $1 trillion for the first time. But any boost won’t come thanks to the average consumer. The top 10% wealthiest Americans, who earn at least $250,000 a year, account for half of all consumer spending .

As such, the average consumer’s perception of their current financial situation will likely influence not just what they buy, but how and where. Additionally, they will likely use financing tools to continue to spend. In recent years, shoppers have used options such as buy now, pay later to splurge on holiday purchases while managing their spending. Last year, 28% of all consumers used the payment method. Meanwhile, the availability of pay later plans influenced where 60 million U.S. consumers, equivalent to 43% of all holiday shoppers, decided to shop last year.

Now and Later

BNPL providers are seizing on this opportunity. Last month, Affirm ran its first “ 0% Days ” promotional event. Also in October, PayPal introduced a cash back offering for the payment method for the remainder of the year. Sezzle has discussed its intention to capture the holiday shopping opportunity.

Yet even with that spending tool, many consumers aren’t budgeting as deliberately as they could be. PYMNTS Intelligence research in June found a gap between consumers’ purported demand for budgeting tools and their usage of those tools.

To get a clearer picture of how consumers are doing financially, check out the new PYMNTS Intelligence report, “ Income Instability Is Redefining the Paycheck-to-Paycheck Economy .” The study not only delves deeper into paycheck-to-paycheck living but also explores how changes in employment and income sources are transforming consumer finances.