Amada Agati:  

With the holidays fast approaching, tis the season to explore some key insights from PNC's 2023 Christmas Price Index in this month's edition of "Adding Alpha." This is a special edition of our Christmas Price Index, as it marks the 40th year where PNC has calculated the cost of Christmas. If there's any consistent theme over the past 40 years, it's that buying gifts for loved ones is expensive.

Our team takes a Christmas-themed angle on the Bureau of Labor Statistics Consumer Price Index, which measures the average change in prices consumers pay for goods and services over time, and we apply our own analysis to procuring true love's 12 gifts, based on the traditional Christmas song, "The 12 Days of Christmas."

Using actual sources such as dance and theater companies, hatcheries, pet stores and others, we build the trends each year to get a sense of how in the hole true love will be when that credit card bill comes due in January.

This year, it's a whopping $46,730 to buy all 12 days worth of true love's gifts, or a cumulative $201,973 if you really want to make an impression by buying all 364 gifts in the repeated verses of the song.

On a percentage basis, the index is up about 2.7%, noticeably lower than last year's hefty 10.5% increase and also less than the headline CPI level of inflation at 3.2%.

With the most aggressive Federal Reserve interest rate hiking cycle in history and slowing growth in some of the largest global economies, macro crosscurrents have helped reduce the rate of increase in the Christmas price index versus recent years.

The good news is that wage growth is now higher than the Christmas price index, which should help true loves deck the halls this year, despite still being in a higher inflation regime. There were exceptions, of course, and the turtle dove soared to new heights as the single biggest mover in the index. These exotic doves are rare due to limited supply, causing prices to fly up on the housetop, click click, click -- an eye popping 25%. Although partridge prices were unchanged this year, pear trees' prices jumped 15%.

We think of the pear tree as a proxy for housing costs, which continue to move higher despite the highest mortgage rates since 2000. 

What's interesting is that the core version of the index, just like the core version of CPI, which excludes the most volatile component of the index, in this case, the swans for the PNC index and food and energy for the CPI, is up 3.7%.

Swans typically have the most volatile price among items in the index. However, this year, prices remained flat. That might actually be a positive signal for investors who've been bracing for investment black swan sightings or finding coal in their stockings as recession concerns linger.

The cost to shop online for all of these gifts are up a lot, too, with the internet version of the index up 4.8% this year. The ease of shopping online may allow true loves to "sleigh" their gift lists all day, but sure is going to cost them.

No doubt we are still feeling the effects of the additional specialty packaging, handling, and care that goes with transporting all of this precious cargo.

At the end of the day, consumer behavior is the drumbeat for the US economy. With 70% of US GDP tied to consumption in some way, shape, or form, consumer health really is a critical driver for the markets and economy.

We continue to see US consumers hanging in there despite the many macro headwinds that continue to swirl. So keep an eye on guiding stars like retail sales, savings rates, and consumer sentiment as indicators of not only the success of this holiday season, but the market's path forward.

And happy holidays.​