Shoppers are ready to open their wallets this holiday season — for the right deals

• Shoppers are willing to spend this holiday season, but many are still budget-conscious.
• Lower inflation — and even deflation — gives some shoppers more money to spend on gifts and parties.
• Others might go into debt to make their holiday dreams come true.

Shoppers appear ready to spend this holiday season, but many aren't giving up the search for bargains just yet.

Multiple signals suggest that some shoppers feel less pinched financially as the biggest shopping season of the year ramps up. US retail sales for October came in slightly above expectations, and prices for many items — including gifts themselves and many essentials, such as gas — are increasing at their lowest rates in a few years.

But customers can still recall that prices were lower four or five years ago, Claire Tassin, a retail and e-commerce analyst at Morning Consult, told Business Insider. As such, many are looking for good deals, as they have been for much of this year, while still spending on the holiday season.

"There is still that desire to find lower-cost alternatives where possible," Tassin said.

Retailers and consumer brands reported this summer that shoppers — even affluent ones — were pulling back on their spending as prices remained high.

Many consumers didn't stop, however. Rather, they tried to get more for their money — think shopping for clothes at an off-price store like Nordstrom Rack instead of one of the retailer's department stores, for instance.

According to a Bank of America Institute report published last week, there are some signs that consumer conditions have improved since then.

The University of Michigan's Consumer Sentiment Index has been inching up since July. In October, the measure hit its highest mark since April. Credit card spending in states affected by Hurricanes Helene and Milton rebounded in the weeks after the storms in October, the report said.

And over the last few months, inflation has slowed on some essential goods, such as groceries, and even turned into deflation in others, such as gasoline, according to the report. Theoretically, that means shoppers have more money to spend on discretionary purchases, such as eating out and buying gifts.

"Is the apparent strengthening in consumer spending temporary? Potentially, but there are reasons to be optimistic," the report reads.

Friday's retail sales growth showed "a good early step forward into the holiday shopping season," National Retail Federation Chief Economist Jack Kleinhenz said. Sales were up 0.4% on a seasonally adjusted basis year-over-year in October, according to the US Census Bureau. The Bureau also revised its September sales figure upward.

"Falling energy prices have likely provided extra dollars for household spending on retail merchandise," Kleinhenz said.

Walmart and Target, which posted differing results this week, both provided evidence that consumers are still spending — if cautiously — going into the holidays.

Walmart CEO Doug McMillon said Tuesday that the chain gained share as shoppers with household incomes over $100,000 kept visiting its stores. Shoppers "continue to seek value to maximize their budgets," CFO John Rainey said. The company raised guidance for the rest of its fiscal year.

Target, however, cut its outlook for the rest of 2024 on Wednesday after the chain said that shoppers cut back on discretionary purchases during the third quarter. Chief Commercial Officer Rick Gomez said that Target is cutting prices on 2,000 items and offering affordable gifts, such as a holiday toy selection with half of the items priced under $20.

Many prices are still higher than they were before the pandemic, said Morning Consult's Tassin said. That could push many consumers to look for value when they buy gifts or plan holiday parties this year.

But clear majorities of shoppers are willing to spend on gifts, food and beverages, and parties during the holidays this year, according to a Morning Consult survey conducted in late August and early September. Some were even willing to go into debt or cut back spending on essentials to afford their holiday plans, according to the survey results.

"People feel the financial pressure, but that doesn't necessarily mean that they're not going to spend," Tassin said, adding that people might cut back on spending in other areas to ensure they have enough for their holiday plans.

"I'm going to pay more attention to sales, or I'll buy the cheaper meat options so that I have a little bit of wiggle room to afford other things," she said.