As inflation moderates and employers continue adding jobs, consumers might expect a holiday season posting faster sales growth rates than last year. Despite positive economic indicators, that’s unlikely the case if forecasts from financial services firm Deloitte and the National Retail Federation (NRF) are correct in predicting more subdued holiday spending than in previous years.
Both of the firms forecast that growth during the upcoming holiday season will not be as strong as last year, barely outpacing inflation as measured by the core personal consumption expenditure price index that grew 2.7% in the 12 months ending with September 2024. If these forecasts are accurate, some retailers will struggle during the season and into next year because holiday sales represent almost 20% of the industry's total sales.
Forecasts for Decelerating Holiday Sales Growth
The NRF, the nation's largest retail trade group, predicts holiday sales will be the highest on record in total but will only increase between 2.5% and 3.5% in 2024 during this holiday season that is defined as November and December compared with 3.9% in 2023. These numbers exclude automobile dealers, gasoline stations, and restaurants.
The average annual increase over the past ten years was 5.1% and the previous high was 12.4% in 2021.
Deloitte is slightly less optimistic than NRF.
Focusing on the three months from November through January to represent sales, the financial services firm is looking for holiday retail sales to increase between only 2.3% and 3.3% (not adjusted for inflation) when compared with last year. Holiday sales in 2022 grew by 4.3% from November through January.
Deloitte expects e-commerce sales to increase between 7% and 9% as higher inflation causes some people to shift to online shopping in search of lower prices while NRF is looking for a similar increase of 8% to 9%. Even though the pace of e-commerce sales is strong, brick and mortar stores still account for about 80% of total retail sales.
Unemployment and Credit Delinquencies Rising
My view about holiday spending aligns with the Deloitte forecast for several reasons.
While the economy was strong in the third quarter based on gross domestic product, we expect it to slow in the fourth quarter. This anticipated slowing of the economy is evidenced by the slight unemployment rate rise to 4.1% in October.
Factors suggesting slower holiday sales growth include higher consumer credit delinquencies and slowing employment growth.
Importantly, higher prices, particularly with necessities such as food and gas, have eaten into individuals’ discretionary income that would otherwise be spent on holiday items.
And finally, one more factor pointing to a lackluster holiday season--job postings for Santa. According to Chmura’s Real Time Intelligence job postings, Santa-related ads in the nation in the third quarter of 2024 are less than half of what they were in 2023. This decline in seasonal hiring further indicates the potential for Ho Hum holiday consumer spending.
This column was originally published at Richmond Times Dispatch.
