Despite economic challenges such as inflation, high borrowing costs, and resumption of student loan repayments, American consumers are anticipated to spend record-breaking sums during the holiday season. According to the National Retail Federation (NRF), this year’s holiday sales could rise by 3% to 4% compared to last year.
Record-Breaking Sales Amid Economic Struggles
The NRF’s latest projections suggest that sales during November and December could total approximately $957.3 billion to $966.6 billion, marking the highest level on record. This is a significant increase from the previous year’s spending of about $930 billion. However, the NRF anticipates a slower growth rate compared to the average 5% increase over the past decade.
“It is not surprising to see holiday sales growth returning to pre-pandemic levels,” NRF President and CEO Matthew Shay said. “Overall household finances remain in good shape and will continue to support the consumer’s ability to spend.”
Many economists expect consumer spending to begin trickling down in the coming months due to the resumption of student loan payments and the persistence of high interest rates. Additionally, more Americans are depending on their credit cards to cover necessities, leading to a surge in credit card debt.
Inflation, despite having cooled down down in recent months, remains 3.7% higher compared to the same time the previous year. This has created severe financial pressures for most US households, who are still paying more for everyday necessities like food, gasoline, and rent.
Retail Industry’s Perspective
Retail giants like Walmart have expressed caution regarding consumer spending in the latter half of the year. They cite potential risks to profit margins, including the resumption of student loan payments, rising gas prices, and high interest rates. Several other brands and retailers may also feel the impact of reduced spending due to the restart of student loan payments.
Consumer Resilience Despite Inflation
Despite persistent inflation, consumers have shown resilience this year, and the NRF predicts that this trend will continue throughout the holiday season. The strong job market and wage gains have sustained spending, according to Shay. NRF data indicates that nearly half of holiday shoppers began shopping before November this year.
“Consumers remain in the driver’s seat, and are resilient despite headwinds of inflation, higher gas prices, stringent credit conditions and elevated interest rates,” NRF Chief Economist Jack Kleinhenz said. “We expect spending to continue through the end of the year on a range of items and experiences, but at a slower pace. Solid job and wage growth will be contributing factors this holiday season, and consumers will be looking for deals and discounts to stretch their dollars.”
“For all that the consumer has kept the economy afloat, the composition of spending from goods to services will also define holiday sales trends,” Kleinhenz added. “Service spending growth is strong and is growing faster than goods spending. The amount of spending on services is back in line with pre-pandemic trends.”
Matthew Shay was quoted by Fox Business as telling reporters on a call “Despite consumers becoming more cautious due to inflation and rising interest rates, they continue to invest in household priorities.”
Online Shopping Trends
Online holiday shopping is projected to grow by 7% to 9% compared to last year, totaling $273.7 billion to $278.8 billion. Last year, this figure was $255.8 billion. This shift towards online shopping has been one of the most significant changes in consumer behavior resulting from the COVID-19 pandemic.
Expected Seasonal Hires
The NRF expects retailers to employ between 345,000 and 450,000 seasonal workers to meet the holiday demand, similar to the 391,000 seasonal hires in the previous year.
In conclusion, despite economic headwinds such as inflation, high interest rates, and the resumption of student loan payments, American consumers are projected to spend record-breaking amounts during the holiday season. This resilience in the face of economic challenges reflects the strength of the job market and wage gains, which have sustained consumer spending. However, retailers are preparing for potential changes in consumer behavior due to these economic factors.