Will Consumers Increase Holiday Sales Spending? | American Funds

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November 21, 2016

Will Consumers Spend More on Holiday Purchases This Year?

Jingle all the way to the bank: Rising consumer confidence is pointing to a robust season for holiday sales.

The National Retail Federation (NRF) is predicting a 3.6% increase in retail sales in November and December — notably higher than the 10-year average bump of 2.5% and more than the 3.2% growth in retail sales seen during the 2015 holiday season.

In all, U.S. consumers are expected to spend $655.8 billion, according to the NRF forecast, which doesn’t include auto, gas and restaurant sales.

The strong forecast comes on the heels of some improving signs for the U.S. economy. While the domestic economy sputtered in the first half of the year, consumers have seen steady job gains and income gains resulting in improving consumer confidence and a greater use of credit, the NRF said.

“The consumer is in a pretty good place,” said NRF chief economist Jack Kleinhenz. “Consumer confidence and consumer sentiment are both elevated.” Regarding holiday sales, he added, “Even though [job growth has] started to slow down, we’ve seen wage increases that should help support additional spending.”

Online sales are expected to have another banner holiday shopping season. “Non-store sales,” which include e-commerce transactions, are expected to grow by 7—10%, to as much as $117 billion, the NRF said.

“Consumers continue to rapidly shift their purchases from physical stores to e-commerce, including categories like apparel that were once seen as unlikely to move online,” says Jessica Spaly, an equity investment analyst at Capital Group. “Even when shopping in physical stores, customers increasingly demand the ability to ‘pre-shop’ on mobile devices, see what is available in stores and pre-order for pick-up if desired.”

While the outlook for holiday sales is rosy for now, conditions could change. Unfavorable weather, geopolitical uncertainty or unforeseen economic factors could shake consumer confidence and affect shopping patterns, the NRF warned.

“We’ve seen risks rear their head during the holiday season and any number of things can actually impact…the spending power of the consumer,” Kleinhenz said. “However, the economic spending power of the consumer is resilient and it should never be underestimated.”

Source: “National Retail Federation Forecasts Holiday Sales to Increase 3.6%." National Retail Federation. October 4, 2016. Retrieved from https://nrf.com/media/press-releases/national-retail-federation-forecasts-holiday-sales-increase-36 

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