Holiday retail sales are expected to rise, but at a slower pace

The context

Holiday retail sales are a closely watched measure of the health of the American consumer and often the most lucrative time of year for major retailers. Even in tough financial times, the question isn’t whether Americans will spend money during the holidays, but how much.

While the Federal Reserve has worked to curb inflation by raising interest rates, executives on Wall Street and the retail industry have kept a close eye on consumer spending. Despite the Fed’s efforts, an economic slowdown has remained elusive as consumers spent heavily on seasonal items in the fall. On Wednesday, the Fed held rates steady at 5.25 to 5.5 percent but said it could still raise rates again.

The trade group noted the various economic pressures U.S. consumers are facing ahead of the holidays: student loan payments resumed last month after a three-year hiatus, consumer confidence has fallen as borrowing costs have remained high and credit card balances are higher .

“We all recognize that there are headwinds impacting consumers, and they will continue to play a role in the final months of this year,” Matthew Shay, CEO of the National Retail Federation, said on the call. “Despite the uncertainty in the economy and the challenges households face, we have seen strength and resilience across the consumer sector.”

The organization highlighted signs of optimism in the economy, with the labor market remaining strong and gross domestic product growing at an annual rate of 4.9 percent over the summer.

“The cumulative effect of all these things will see some moderation in consumer behavior compared to holiday spending in recent years,” Mr. Shay said. He described the dynamics as “predictable and ultimately inescapable” as the economy normalizes from the pandemic.

The background

The estimate of sales growth during holidays is lower this year than in previous years. In 2022, holiday sales rose 5.3 percent from the previous year to $936.3 billion. In 2021, they rose by 12.7 percent.

Average holiday sales growth between 2010 and 2019 (just before the pandemic) was 3.6 percent, the organization said.

What’s next

This month, major retailers such as Walmart, Target and Macy’s will report their quarterly results and are expected to provide their fourth-quarter guidance. Over the summer, major retailers warned that they were seeing a slowdown in spending and that their customers were showing signs of being more financially stressed than before.

Target is seeing a slowdown among its customers, even in categories where people continued to buy despite higher prices, said Brian Cornell, the retailer’s CEO. told CNBC on Thursday.

“They manage that budget very carefully,” Mr. Cornell said of Target shoppers. “In discretionary goods, we have seen seven straight quarters of both dollar and unit declines.”