Consumer Spending Outlook: Holiday Prices Skyrocket, Spending Contracts amid AI-Driven Retail and Banking Boom

Price‑expectation scores have risen 8 percentage points year‑over‑year while average holiday spend has contracted 10 %. The contraction is most pronounced among Gen Z (‑34 %) and Millennials (‑13 %). Seven‑in‑ten shoppers now prioritize discounts, and online sales growth has slowed to 4 % YoY.

Macro and Labor Indicators

• Unemployment: 4.3 % (August), up 0.1 ppt.
• Consumer‑confidence index: 55 (lowest since May 2025).
• 57 % of respondents expect a weakening economy within 12 months.
• Average hourly earnings up $2,024 YoY, but the wage‑price gap remains ≈1.2 ppt.

The combined effect points to a flat‑to‑negative total consumer expenditure for the 2025 holiday season, with retail sales growth constrained to ≈4 % YoY, driven largely by promotional activity.

Retail‑Sector Response

• AI‑driven dynamic pricing and personalized deal engines are being deployed to capture price‑sensitive shoppers.
• Deal‑seeker targeting is projected to increase promotional intensity by ≈15 % YoY.

Corporate‑Mergers Surge – Banks Prioritize Acquisitions

• Goldman advisory revenue Q2 2025: $1.4 bn (+60 %).
• Sector‑wide investment‑banking fees: $2.7 bn (+42 %).
• Average transaction volume: 61 deals (2024) ↑64 % YoY.
• Private‑equity “dry‑powder” pool: >$1 tn.

Deal‑centric revenue now accounts for >55 % of total investment‑banking revenue (projected for 2028). M&A spend has doubled relative to R&D‑I spending since 1975, indicating a strategic shift toward external growth.

Bank Earnings Beat – Equity‑Market‑Driven Revenue Surge

Equities‑trading revenue rose 14‑35 % YoY across the cohort, delivering $20‑$25 bn incremental income. Net‑interest income also exceeded expectations after a 25 bp Fed rate cut in September.

Key Risks

• Elevated equity valuations (P/E ratios in large‑cap tech) could compress trading revenue.
• Auto‑loan delinquency uptick (early warning signs from JPMorgan).
• Regulatory uncertainty around capital requirements.

AI‑Fintech Investment – Capital Surge and Cybersecurity Growth

• AI‑related corporate spending FY 2025: >$2.5 tn.
• Fintech capital for resilience‑focused ventures FY 2025: $10 bn.
• AI‑augmented cash‑flow forecasting accuracy up 12 ppt YoY.
• Cybersecurity AI‑focused deals H2 2025: 145 deals, $2.3 bn total, mean $18.3 m.
• AI‑specific security budgets: >$1 m per firm; 70 % cite AI development speed as top concern.

I see a clear bifurcation: AI drives efficiency gains (e.g., 74 % of finance leaders expect ≥85 % compliance ROI) while simultaneously expanding the attack surface, as fraud attempts have risen 80 %.

Embedded Finance Expansion

• Revenue‑based financing embedded in SaaS platforms generated $450 m incremental ARR H1 2025.
• Instant digital‑card issuance reduced checkout latency 35 % and lifted repeat purchase rates 12 % (Shopify Capital data).
• Projected embedded‑finance ARR: >$7 bn by 2027; B2B accounts for 60 %.

Valuation Debate

Automotive Pricing, Recalls, and Regulatory Pressures

• Average Transaction Price (Sept 2025): $50,080 (+3.6 % YoY).
• Incentive spend: 7.4 % of ATP (~$3,700 per vehicle).
• Recall volume Q2 2025: 96 campaigns covering 8.5 M vehicles (+16 % QoQ).
• OTA‑eligible recall fixes: 769 k vehicles (≈8 % of recall base).
• Subprime auto‑loan delinquency (60 days past due): 6.43 %.

Higher ATPs combined with rising recall‑related service costs compress margins, especially as the IRA EV tax credit was removed in September 2025. Manufacturers are shifting to cash‑leasing incentives (e.g., GM’s up‑to‑$6 k lease subsidy) and expanding OTA capabilities to reduce dealer labor exposure (average $250 saved per OTA fix).

Integrated Business Implications

1. Retail and automotive sectors will increasingly rely on AI‑driven pricing and OTA remediation to protect margins.
2. Banking revenue growth will continue to be powered by equity‑trading and M&A fees, but exposure to valuation bubbles and credit‑risk deterioration mandates tighter risk monitoring.
3. AI‑fintech and embedded‑finance platforms present high‑growth opportunities; however, firms must allocate sufficient resources to AI‑focused cybersecurity to offset escalating threat vectors.
4. Policy uncertainty (federal EV credit removal, potential UK VED adjustments) will pressure EV pricing strategies and may temporarily curb EV adoption rates.

Overall, the data convey a business environment marked by heightened price sensitivity, accelerated deal activity, and rapid technology adoption—all underpinned by a cautious macro backdrop. Stakeholders that prioritize dynamic pricing, robust risk controls, and strategic allocation toward high‑margin segments are positioned to navigate the prevailing constraints while capturing the incremental upside embedded in AI‑enabled finance and embedded‑services ecosystems.