Economic Impact: Holiday Retail Sales Expected to Rise by All-Time Record, but Supply Chain Shortages Could Dampen Sales

This article was originally published in the Richmond Times Dispatch on November 7th, 2021. 

With the holiday shopping season just kicking off, some observers believe supply chain shortages could dampen sales.

But if the forecasts from the National Retail Federation and global financial services firm Deloitte are correct, retailers will be celebrating during this important time of the year as holiday sales represent about 20% of the industry's total sales.

The NRF, the nation's largest retail trade group, predicts holiday sales will be the highest on record by increasing between 8.5% and 10.5% compared with 2020 to a total of between $843 billion and $859 billion during the upcoming holiday season. These numbers exclude automobile dealers, gasoline stations, and restaurants.

The average increase over the past five years was 4.4% and the previous high was 8.2% in 2020.

Similar to last year, Deloitte is not as optimistic as NRF, but it is also looking for stronger sales than last year.

The financial services firm is looking for holiday retail sales to increase between 7% and 9% when compared with last year. Deloitte uses the three months from November through January to predict sales.

Both groups expect e-commerce sales to increase between 11% and 15%.

My view about holiday spending is in line with the NRF forecast for a couple of reasons.

Increasing consumer spending is typically associated with growing employment and low unemployment rates.

Employment in October is still 2.6 million below pre-COVID levels, but an average 561,000 jobs were added back during each month of this year. And the U.S. unemployment rate has fallen to 4.6% after peaking at 14.8% in April 2020.

Another factor that will help fuel spending this holiday season is rising home prices, a soaring stock market, and increased household wealth.

Despite its up and downs, the S&P 500 has grown over 20% this year. According to a Federal Reserve report, U.S. household wealth rose to a record $136.9 trillion at the end of March. 

And consumers likely have cash to spend. The same Fed report showed that balances in cash, checking accounts, and savings deposits grew $850 billion in the first quarter to a record $14.5 trillion.

Consumer spending has been rising at a double-digit rate from March through September when compared to the same months a year ago. The latest report for September shows retail sales were up 13.8% compared with a year ago.

If supply chain issues cause product shortages as predicted, gift card sales may surge this holiday season. This could potentially reduce holiday season sales because gift cards are not included in retail sales until the card is redeemed.

On the other hand, prices, which were up 5.4% in September compared with a year ago according to the Consumer Price Index, will boost retail sales.

Holiday season sales may not be as strong in Virginia as in the nation.

September employment in the state rose only 1.9% compared with a year ago, compared with 4.0% in the nation. In addition, the state’s dependence on federal government employment and contracts may cause an increase in unemployment due to vaccination mandates.

But the one thing all forecasters seem to agree on is that the shift toward e-commerce sales will accelerate this holiday season because of COVID concerns.