Holiday spending is expected to break another record this year even though consumers are grappling with inflation and higher interest rates, according to a new forecast.
The National Retail Federation released its 2023 holiday shopping projections on Thursday. It expects holiday spending will increase by between 3% and 4% from last year, with shoppers set to spend up to $966.6 billion in November and December.
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“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.”
The expected growth is right in line with pre-pandemic growth trends, according to the researchers. From 2010 to 2019, annual holiday spending grew by 3.6% on average.
Still, this year’s shopping season will likely be a slowdown from 2022, which notched robust 5.4% growth. It is also lower than the pandemic rebound years — holiday sales rose more than 9% in 2020 and a whopping 13.5% in 2021.
During a call with reporters that coincided with the forecast’s release, Shay noted that this year has seen historically low unemployment, robust wage growth, and a strong labor market. He said that bodes well for spending as the holidays approach.
“We think that is going to continue to support consumer activity throughout the holiday season,” Shay said.
Taking a step back, Shay pointed out that overall retail sales have now grown year over year for 41 consecutive months — every month since May 2020.
Last year during the holiday shopping season, many economists had expected the U.S. would be in a recession by now. Instead, it is growing and in many ways has outperformed historical norms.
For instance, gross domestic product growth accelerated to a 4.9% seasonally adjusted annual rate in the third quarter of this year, up from 2.1% the quarter before, the Bureau of Economic Analysis reported. That was above the expectations of economists for a still-strong 4.2% increase.
The economy has just kept adding jobs too, with the unemployment rate clocking in at 3.8% last month. The number of job openings also rose, in defiance of expectations, to 9.55 million in September.
Still, despite the bright spots in the economy, inflation is still plaguing consumers. Inflation rose to 3.7% in September, according to the consumer price index — a number that is nearly double what the Federal Reserve considers healthy.
And the Federal Reserve has been raising its interest rate target in response. The federal funds rate is now the highest it has been in years and has caused mortgage rates to soar and made taking on and paying off credit card debt much more expensive.
“Consumers remain in the driver’s seat, and are resilient despite headwinds of inflation, higher gas prices, stringent credit conditions, and elevated interest rates,” said NRF chief economist Jack Kleinhenz. “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.”
Each year consumers have begun their holiday shopping earlier. Prime Big Deal Days took place online in October and was billed as an early start to the shopping season.
Amazon Prime users saved more than $1 billion on millions of deals during the 48-hour event, which was the second year it has been held, according to Amazon. On the first day of the holiday kickoff, 25 million items with same-day or next-day delivery were purchased, the company said.
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Ted Rossman, senior industry analyst at Bankrate, said there has been an uptick in companies offering discounts well in advance of the holiday shopping season.
“Black Friday sort of comes in October now,” Rossman told the Washington Examiner a few weeks back.