Despite inflation and high interest rates, holiday spending is projected to reach record levels.
Holiday Spending Expected to Reach Record Levels Despite Challenges
Get ready for a holiday shopping season like no other. According to a new forecast by the National Retail Federation, holiday spending is projected to break records once again this year, despite the challenges of inflation and higher interest rates.
The NRF’s 2023 holiday shopping projections reveal that consumers are expected to increase their spending by 3% to 4% compared to last year. In total, shoppers are anticipated to spend a staggering $966.6 billion in November and December.
Returning to Pre-Pandemic Levels
NRF President and CEO Matthew Shay expressed his lack of surprise at the expected growth, stating, “It is not surprising to see holiday sales growth returning to pre-pandemic levels.” He further explained that overall household finances remain strong, which will continue to support consumers’ ability to spend.
Researchers note that the projected growth aligns with pre-pandemic trends, as annual holiday spending saw an average increase of 3.6% from 2010 to 2019.
A Slowdown from Previous Years
While this year’s shopping season is expected to be robust, it is likely to be a slowdown compared to the impressive growth of 2022, which reached 5.4%. Additionally, it falls short of the extraordinary rebound years during the pandemic, with holiday sales surging by over 9% in 2020 and a staggering 13.5% in 2021.
However, Shay remains optimistic, highlighting historically low unemployment rates, robust wage growth, and a strong labor market as factors that will support consumer spending during the holiday season.
Continued Growth and Outperformance
Shay emphasized that retail sales have experienced year-over-year growth for an impressive 41 consecutive months, starting from May 2020. This growth defied expectations, as many economists had predicted a recession during last year’s holiday shopping season.
The economy has also outperformed historical norms, with the gross domestic product (GDP) accelerating to a 4.9% seasonally adjusted annual rate in the third quarter of this year. This exceeded economists’ expectations of a 4.2% increase.
Furthermore, job growth has remained steady, with the unemployment rate at just 3.8% last month. Surprisingly, the number of job openings also rose to 9.55 million in September, defying expectations.
Challenges of Inflation and Higher Interest Rates
Despite the positive economic indicators, consumers are still grappling with the effects of inflation. In September, inflation rose to 3.7%, nearly double the Federal Reserve’s healthy threshold, according to the consumer price index.
In response, the Federal Reserve has raised its interest rate target, resulting in higher mortgage rates and increased costs for credit card debt. However, NRF chief economist Jack Kleinhenz remains optimistic, stating that consumers are resilient and will continue to spend, albeit at a slower pace. He expects solid job and wage growth to contribute to this holiday season’s spending, with consumers seeking deals and discounts to stretch their budgets.
Early Start to the Shopping Season
Consumers have been starting their holiday shopping earlier each year. This trend was evident during Prime Big Deal Days, an online event held in October that marked the early start of the shopping season. Amazon reported that Prime users saved over $1 billion on millions of deals during the 48-hour event. On the first day alone, 25 million items were purchased with same-day or next-day delivery.
Ted Rossman, senior industry analyst at Bankrate, noted that companies have been offering discounts well in advance of the holiday shopping season, with “Black Friday sort of comes in October now.”
Get ready for an exciting and record-breaking holiday shopping season ahead!
How has the pandemic-induced recession impacted GDP growth and what does that mean for the retail sector?
Rebounded from the pandemic-induced recession, with GDP growth exceeding expectations. This indicates a strong foundation for continued growth in the retail sector.
Furthermore, consumer confidence remains high, with individuals feeling more optimistic about their financial situations and future prospects. This positive sentiment is expected to translate into increased holiday spending.
However, it’s important to note that challenges still exist. Inflation has been a major concern, with rising prices of goods and services impacting consumers’ purchasing power. Additionally, higher interest rates may make borrowing more expensive and potentially deter some consumers from making big-ticket purchases.
Retailers are also facing supply chain disruptions and shortages of key products, which may affect the availability of certain items during the holiday season. These challenges, combined with increased online shopping, may lead to longer delivery times and potential disappointment for some shoppers.
Despite these obstacles, retailers are preparing for a busy holiday season. They are implementing strategies to mitigate supply chain disruptions, such as diversifying sourcing and increasing inventory levels. E-commerce platforms are investing in technology to improve delivery logistics and enhance the online shopping experience.
The NRF’s forecast indicates that consumers are ready to embrace the holiday spirit and make the most of the season. They are looking forward to reconnecting with loved ones and treating themselves and others with gifts and experiences. This mindset, along with the overall favorable economic conditions, is expected to drive holiday spending to new heights.
In conclusion, the holiday shopping season is expected to reach record levels this year, despite the challenges posed by inflation and higher interest rates. Consumers are projected to increase their spending, returning it to pre-pandemic levels. While the growth rate may be slower compared to previous years, the overall trend remains positive. Retailers are adapting to supply chain disruptions and investing in technology to meet consumer demands. With a strong economy and high consumer confidence, the stage is set for a joyous and prosperous holiday season.
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