US Retailers Expect $1 Trillion Holiday Sales Despite Economic Pressures

The nation's largest retail trade group forecasts that American consumers will spend $1.01 trillion this November and December, a 4.2% increase over the same period last year. This projection by the National Retail Federation (NRF) anticipates continued consumer spending despite economic headwinds such as inflation and higher fuel prices.

Economists attribute about half of the anticipated growth to rising prices, with higher-income shoppers expected to be a significant driver of spending. "We all acknowledge households continue to navigate persistent inflation and uneven confidence about the economy," said National Retail Federation President and CEO Matthew Shay. "But throughout the year, consumers have repeatedly shown that holidays and spending on loved ones are priorities."

Last year, retailers saw $972 billion in holiday sales, a 3.1% increase from the previous year. The NRF's current projection of 4.2% growth is above the average annual gain of 3.1% over the past two decades, excluding the pandemic-affected years of 2020 and 2021. This forecast does not account for inflation.

The retail outlook highlights a divergence between consumer confidence surveys, which often show pessimism, and actual consumer behavior. The war in Iran has contributed to rising gasoline prices, with the average price for regular gasoline reaching $4.33 per gallon, up from less than $3 before the conflict. These higher prices are expected to impact lower-income shoppers more significantly, while those with higher incomes, potentially bolstered by stock market gains, may continue discretionary spending.

Consumers are adapting their spending habits by opting for lower-priced brands and stores, shopping earlier, and increasingly using credit cards and buy now, pay later plans, according to AlixPartners. Holiday sales typically account for about 19% of the U.S. retail industry's annual revenue.

Economists view holiday sales results as an indicator of the consumer's economic health beyond the holiday season, given that consumer spending drives approximately 70% of U.S. gross domestic product. The Mastercard Economics Institute forecasts a 5.5% increase in holiday sales from November 1 through December 24 compared to last year, also estimating that half of this growth will stem from higher prices. The institute cited a robust job market as a factor supporting consumer confidence.

AlixPartners projects holiday sales growth between 4% and 7% for October through December compared to the same period last year. Adobe anticipates U.S. online sales to reach $275 billion, a 6.7% increase, slightly less than the 6.8% growth seen last year.

The NRF's forecast methodology incorporates economic indicators such as monthly retail sales, consumer spending, disposable personal income, employment, wages, and inflation. The calculation excludes sales from automobile dealers, gasoline stations, and restaurants. Recent Commerce Department data showed a 0.8% increase in retail sales in September, with gasoline purchases contributing substantially to the gain, reflecting broader inflationary trends.