Retailers Expect Strong Holiday Sales Despite Economic Uncertainties

Retailers are looking forward to a strong Christmas season this year, and consumers also plan to spend more, two new surveys report. However, a third survey by the Federal Reserve Bank of New York presents a more cautious view with a slight decrease in expected spending growth even though more respondents say credit conditions have improved.

The National Retail Federation’s forecast of winter holiday spending will leave shopkeepers smiling. It projects a 2.5 to 3.5% increase above 2023’s $955.6 billion retail revenue – or between $979.5 billion and $989 billion in 2024 spending. A large part of that will be due to online shopping, which is expected to rise from 8% to 9%. That would equate to a range of $295.1 billion to $297.9 billion, between $21.8 billion to $24.6 billion more than consumers spent online in 2023.

“Household finances are in good shape and an impetus for strong spending heading into the holiday season,” noted the Federation’s chief economist Jack Kleinhenz.

One consequence of the expected shopping spree will be the need to hire seasonal workers. The Federation expects stores to hire between 400,000 to 500,000 temporary employees for the holiday season – fewer than the 509,000 hired in 2023.

This year, retailers can also expect shopping to be more rushed than last year, because there will be five fewer shopping days between Thanksgiving and Christmas. They may also experience some impacts from the hurricanes that destroyed parts of Florida and Western North Carolina. The effects, if any, of the Presidential election are harder to predict.

At the same time Kleinhenz said that, despite the hopeful outlook, households will spend more cautiously.

That note was also struck by consulting firm Deloitte with a similarly positive outlook for retailers. Its report was even more glowing, finding that consumers plan to spend an average of $1,778 this holiday season – an 8% increase over 2023. However, it pointed out that 70% of consumers expect higher prices and plan to cut back on some spending types, while a majority are willing to switch to cheaper brands or shop at more affordable stores to keep their budgets under control. The bulk of spending is expected to occur in late November, especially during Thanksgiving week.

“While holiday shoppers are more optimistic and willing to spend, they remain focused on finding the best deals to maximize their budgets, even if it means choosing value over loyalty,” Deloitte said.

The difference between retailers’ expectations of an approximately 3% increase in spending and Deloitte’s 8% forecast may possibly be explained by the additional categories Deloitte took into account. “Spending on experiences, including travel, hosting gatherings, or attending holiday concerts and activities, is on the rise, underscoring shifting priorities and new opportunities for retailers,” it noted. Indeed, four in 10 shoppers intend to gift experiences like event tickets or vouchers to restaurants and spas.

Spending on experiences is up 16% compared to 2023 and non-gift items like décor and party apparel are up 9%. Guests can expect a good time this season, as hosts are likely to spend an average of $261 on entertaining them, and 70% of hosts are willing to spend more on items or services to take off some of the burden. Just under half plan to ask guests to help out by bringing food or beverages to the gathering.

Deloitte predicts that retail spending on gifts and non-gifts will likely remain flat compared to last year, with expenditures on gifts down 3% and spending on non-gifts up 9%. Households earning less than $200,000 also plan to increase their buying. More will give food and beverage products, and though clothing and accessories remain the top gift ideas, shoppers plan to spend 10% less on these items.

At the same time, shoppers are not blind to economic realities. Seven out of 10 expect higher prices. The majority prefer to buy from online-only retailers and mass merchants. “Multichannel presence continues to be essential for retailers to meet shoppers where they are, especially as younger buyers gain purchasing power; 48% of those surveyed plan to shop on smartphones, while 13% plan to purchase on social media,” the report stated.

The September report of the Federal Reserve Bank of New York’s Center for Microeconomic Data presents a more sobering, though mixed, picture. Its Survey of Consumer Expectations (SCE) is “a nationally representative, internet-based survey of a consulting panel of approximately 1,300 household heads.”

Median expectations of inflation for the year ahead have not changed, but increased in the 2.5% to 2.9% range for the three-to-five-year outlook, especially among respondents with no more than a high school degree. There was a drop of 1.5% to 36.2% in the share of households expecting an increase in the unemployment rate, irrespective of education or household income. The probability of losing a job in the next 12 months was unchanged, but there was a rise from 19.1% to 20.4% in the number of respondents likely to voluntarily leave their jobs, especially among those under 40.

Retailers may not be happy with a 0.1% decrease to 4.9% in median household spending growth expectations. However, a larger share of respondents reported improved credit availability while a smaller percentage said credit was tighter. There was also an increase in the number of respondents who expected looser credit conditions a year from now.

On the other hand, “the average perceived probability of missing a minimum debt payment over the next three months increased for the fourth consecutive month to 14.2% from 13.6% in August.” This was the highest level since April 2020 and was most pronounced for respondents between the ages of 40 and 60 with annual household income above $100,000.

“Perceptions about households’ current financial situations deteriorated with fewer respondents reporting being better off and more respondents reporting being worse off than a year ago. Year-ahead expectations improved with a smaller share of respondents expecting to be worse off and a larger share expecting to be better off a year from now,” the SCE stated.