Consumers On 'Solid Footing' Heading Into The Holidays, NRF Says

The past three holiday shopping seasons have offered challenges and opportunities for retailers, and this year is expected to provide its own set of unique dynamics as consumers begin their gift-shopping journeys.

Jack Kleinhenz, chief economist with the National Retail Federation (NRF) noted that heading into the heart of the holiday shopping season the average American household remains on relatively solid financial footing despite on-going economic headwinds. 

“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,” he said. “The overall story for this holiday season is that it looks very good.”

The NRF expects record spending during the holiday season – defined as November 1 through December 31 – and forecast retail sales to increase between 3% and 4% over 2022 to between $957.3 billion and $966.6 billion. The growth rate is consistent with the average annual increase of 3.6% from 2010 to 2019. The projected total sales, which exclude automobile dealers, gasoline stations and restaurants to focus on core retail, 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 and that 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.”

Shoppers this holiday season are again walking into their favorite stores and visiting their go-to websites facing a number of challenges including inflation and high interest rates. This follows the past three years when the COVID-19 pandemic and its residual effects including supply chain challenges and product shortages forced retailers and consumers to adapt. 

“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 Americans stayed home,” Kleinhenz recalled. “Sharply rising demand overcame supply chain bottlenecks for a record growth rate of 12.7% in 2021. And holiday sales in 2022 rose 5.4% as savings built up during the pandemic provided a buffer against rising inflation and online shopping continued but more consumers returned to stores.”

Kleinhenz noted there has been a disconnect between solid consumer spending and weak consumer confidence with shoppers spending more despite worries about inflation, high interest rates and political stress. 

“The consumer sector has been remarkably resilient this year even though spending has been uneven, with growth rates rising at a brisk pace in the first quarter only to slow in the second and become quite strong in the third with another slowdown expected in the fourth,” he said.