Retailer bottom line: Solid consumer fundamentals expected to drive above-average sales growth this holiday season.
NRF is forecasting holiday sales will grow between 3.7% and 4.2% above last year’s holiday season, the first time we’ll exceed $1 trillion in sales for the holiday season. For context, retail sales grew an average of 3.6% over the 10-year period between 2010-2019. This is an above-trend forecast that reflects a consumer who has prioritized spending on their loved ones. All of the event-driven spending we’ve seen this year — Valentine’s Day, Mother’s Day, Father’s Day, back-to-school and Halloween — has been at or near record levels.
One of the key drivers of retail sales growth is online spending. We expect online and other non-store sales to increase 8% to 9%, totaling $312.2 billion to $315 billion — up from $289 billion last year.
It’s worth mentioning that every year it gets harder to differentiate between online, in-store and everything in-between. So, while I call these figures out, I also question their utility in the world of modern retail.
On the hiring side of things, retailers are expected to hire between 265,000 and 365,000 seasonal workers, possibly the lowest level in over 15 years, reflecting a softening economy and slower labor market. Hiring remains challenged, particularly in the retail sector, as businesses are behaving cautiously in the face of continued uncertainty.
There is no doubt that consumers remain concerned about inflation and have a lot of anxiety about the state of the economy and where prices are headed. The University of Michigan Sentiment Index is currently near historical lows. Although sentiment has been slightly lowered a couple of times in the last three-year period driven by the post-pandemic inflation crisis, you have to go back to 1980 to find a similarly low level of sentiment.
Sentiment matters, but over the last few years, we’ve seen consumers spend irrespective of their sentiment levels. Right now, I like to think of the current consumer as sentimentally weak, but fundamentally sound. Here's why.
Firstly, the U.S. consumer’s balance sheets continue to be in a good place thanks to rising equity and housing prices. On an inflation-adjusted basis, when we remove the anomalous pandemic years, real disposable income has only been higher at one point in history. On top of that, wages have exceeded inflation since March 2023 — over 30 months of real wage growth.
CNBC/NRF Retail Monitor, powered by Affinity Solutions, is a monthly measure of retail sales.
The unemployment rate has ticked up slowly over the last few years but remains at historically low levels. In the past 50 years, there has only been one period during which unemployment was lower than it is now.
Some concern about consumer debt and delinquencies does remain, though household debt payments as a percentage of disposable income have decreased for the last few quarters after increasing consistently since the abnormally low levels we witnessed during the pandemic. The ratio of debt service payments to disposable income is 11.25% — the lowest we have seen, excluding the pandemic years, since the 1990s.
After peaking in the second quarter of 2024, credit card delinquencies have fallen to levels that are low in a historical context. Similarly, mortgage delinquencies are at historically low levels. Auto loan delinquencies are an area of concern and student loan delinquencies could pose issues as well. However, delinquency rates and debt service ratios remain manageable overall.
One of the few brights spots in the economy is consumer spending. Consumer expenditures currently make up over 68% of GDP. During the 1950s – 1980s this proportion was closer to 60%. Census data shows that retail sales are up 4% this year; NRF data is more bullish, showing year-over-year growth of 5.1%.
Dive into NRF's holiday consumer data and see how consumers are planning to spend this year.
While top-line spending has been strong, consumers have shown some of their anxiety about prices and inflation by trading down to less expensive options. However, softness in spending has tended to fall more on the services side than the goods side as medium and lower-income households have pulled back on spending in areas like on recreation and travel.
As we head into the holiday season, we have a consumer that has both the means and the intent to continue to be the spark this economy needs to stay on an even keel.
