Although macroeconomic factors have weighed on holiday sales prospects, National Retail Federation Chief Economist Jack Kleinhenz, as part of NRF’s Monthly Economic Review for November, stated that consumer spending momentum looks to chug along in the last two months of the year.
NRF expects record holiday season spending in 2023, defined as November 1 through December 31, and forecasts retail sales to advance between 3% and 4% over 2022 to between $957.3 billion and $966.6 billion. The growth rate is consistent with the average annual sales gain of 3.6% from 2010 to 2019, and the projected total sales, which focus on core retail by excluding automobile dealers, gasoline stations and restaurants, would top the record of $929.5 billion set last year.
“While there is significant uncertainty surrounding the measurement of how well the economy is performing, it continues to move forward and defy recession predictions, proving it to be more resilient than anticipated,” Kleinhenz said. “I expect the recent rhythm of spending will continue into the holiday season. Consumers will continue to spend on a range of items and experiences but at a slower pace. Households are starting the season in decent financial shape and are managing the constraints of their paychecks amid higher interest rates and higher monthly financial obligations as they seek to maintain their mode of living.”
Kleinhenz added, “The last few holiday shopping seasons have been filled with unmatched peculiarities for consumers and retailers alike.”.
In 2020, sales surged 9.1% year over year despite the challenges of COVID-19, and there was a significant move to shopping online as consumers in the United States stayed close to home. Rising demand overcame supply chain bottlenecks for a record growth rate of 12.7% in 2021. Holiday sales in 2022 rose 5.4% as savings banked during the pandemic provided a buffer against rising inflation and more consumers shopped in physical stores.
“This year, a whole new set of dynamics is in place,” Kleinhenz said. “The average household remains on relatively solid financial footing despite pressures from still-high inflation, stringent credit conditions and elevated interest rates. Recent revisions to government data indicate that consumers haven’t drawn down as much of their pandemic savings as believed earlier, and savings are still providing a buffer to support spending. The overall story for this holiday season is that it looks very good.”
Kleinhenz pointed out that “a disconnect between solid consumer spending and weak consumer confidence” has been evident through 2023, with shoppers spreading around more dollars despite worries about inflation, high-interest rates and political stress. The consumer sector has been “remarkably resilient” this year despite uneven spending, with growth rates rising at a brisk pace in the first quarter only to slow in the second and become stronger in the third. He noted that although consumers are likely to continue spending, observers expect some slowdown in the fourth quarter. Continued wage and job growth has fueled spending gains, Kleinhenz maintained, and job growth has “slowed but not tumbled,” with payrolls climbing by 150,000 positions in October and the three-month moving average at 204,000 despite downward revisions for August and September. Credit card use has been gaining, but households’ ability to pay their bills is in line with pre-pandemic levels.
Something of a shift in spending from goods to services could affect holiday retail sales as consumers who stayed at home during the pandemic do more traveling, entertainment and restaurant dining. But Kleinhenz said consumers often prioritize holiday spending and may even reduce purchases earlier in the year to safeguard their ability to spend during the celebratory season.
