Carreen MaloneyDespite price increases, a choppy supply chain and fears about the new Covid-19 Omicron variant, US consumers are expected to surpass holiday spending forecasts, according to a chief economist at the National Retail Federation (NRF).
“Now that we’re in December, the holiday shopping season is nearing the finish line,” said Jack Kleinhenz in a monthly economic review released Friday by the NRF.
“The question is how have factors ranging from economic indicators to the twists of the Covid-19 pandemic affected the season so far, and what role will they play in the weeks that remain? There’s no crystal ball to provide a definitive answer, but the latest data is encouraging and provides useful insights. In fact, the season could turn out even better than we expected.”
11.5% increase expected
Kleinhenz predicted retail sales for the holiday shopping period of November and December could increase 11.5% from the same time last time. That’s up from the previous forecast the NRF made in October of an 8.5%–10.5% expansion. The organisation speculates consumers' concerns over product shortages motivated them to start shopping earlier than usual, and October had a 10.8% increase in sales compared to the same month last year.
“The holiday season clearly looks to be off to a good start,” Kleinhenz said. “Consumers remain in solid financial shape and do not appear to be stretched.”
Figures released by the Bureau of Economic Analysis (BEA), a US government agency that is a division of the Department of Commerce, offered a variety of signs that consumers aren’t holding back on spending this season. In October, spending was up by 1.3%, the biggest monthly increase since March.
Savings rate decreased
Disposable personal income jumped by 4.1% this year, and consumers spent an average of 12% more than 2020. The savings rate dropped almost a whole percentage point, from 8.2% to 7.3%. Overall, economic growth was reported to be 2.1% in the third quarter, although that was diminished from second quarter’s growth of 6.7%.
“Households have a savings cushion of around $2trn (£1.51trn) accumulated since the beginning of the pandemic to support spending and provide an important buffer against higher prices,” Kleinhenz wrote.
The economist added that a strengthening job market is helping to support retail spending.
“The job market appears to be regaining its vitality,” Kleinhenz said. “Initial unemployment claims declined by 71,000 to 199,000 as of the weekend before Thanksgiving, plunging to the lowest level since 1969.”
Inflation continues to be a lingering concern for retailers, and the BEA’s personal consumer expenditures price index reported a 5% year-over-year increase in October fuelled by price hikes in energy and food, as well as other sectors. Prices in core retail categories including general merchandise, apparel, accessories and furniture rose more modestly at a combined rate of 3.3%.
Gloomy consumers
Although the numbers coming out are encouraging for businesses, consumers are still showing signs of pessimism. The University of Michigan’s index of consumer sentiment declined to 67.4 in November, the lowest level logged since November 2011. Concerns over gas prices, inflation, Covid-19 variants, and federal budget and debt limit unease could all be contributing factors, Kleinhenz speculated, adding that the numbers matter more than reports of sagging consumer confidence.
“When faced with a disparity between a consumer survey and hard data on spending, watch what consumers do, not what they say.”
Read more: Black Friday weekend expected to draw record sales numbers
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