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Holiday Gift Box

Unwrapping the NRF Holiday Sales Forecast

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Monthly Economic Review: October 2014

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The all-important holiday shopping season is upon us.

As the humorous proverb goes, “It is difficult to predict, especially the future.” So, as someone in the business of economic modeling and prediction, I thought it might be useful to explore the rationale behind NRF’s 2014 holiday forecast, which calls for a retail sales increase of 4.1 percent to a total of $616.9 billion.

To start, what’s included in the annual holiday forecast?

For our purposes, we define “holiday sales” as those happening from November 1 through December 31. That starts before the big kickoff of Black Friday and ends after Christmas, but the government collects data on a monthly basis, so using the full month makes the number crunching a whole lot easier. We include all retail sales but exclude automobile dealers, gasoline stations and restaurants, which is consistent with the retail sales tracking we do throughout the year. While lots of people go out to dinner for holiday meals, few are lucky enough to get a car under the tree or menorah, and a gallon of gas is difficult to wrap.

So what do we look at to come up with the forecast?

Overall, we expect holiday spending to reflect recent economic momentum. The economy is expanding and there doesn’t appear to be any distinct shift away from the moderate pace of growth. Growth is expected to continue to be slow and steady following the unusually high degree of volatility we saw in the first half of the year.

Economic growth for the balance of 2014 is forecast to be in the range of 3 percent over the same time last year. Employment, income and consumer confidence are all improving.

Overall, we expect holiday spending to reflect recent economic momentum.
Jack Kleinhenz


Labor market indicators point to continued growth. There have been gains of 200,000 or more jobs every month except two this year. Since the end of 2013, more than 2 million jobs have been created. The unemployment rate — a key psychological indicator for the public — stood at 5.9 percent in September, down more than a full percentage point since the same time in 2013, and at its lowest level since July 2008. Jobless claims have been below 300,000 for more than a month, which is rare in historical terms.


With more jobs on the books, there is more aggregate income for more spending. For August and the two prior months, personal income grew 4.1 percent compared with 2013. As the season nears, we will be keeping a close eye on disposable income to gauge economic activity.

Consumer Confidence

Consumer confidence has reached post-recession highs over the past year. The University of Michigan Consumer Confidence Index, for example, increased 1.8 points in October to 86.4, its best reading in more than seven years.

Nonetheless, confidence continues to be erratic and difficult to interpret. With gas prices and unemployment low and smaller debt burdens, consumers should feel a bit better about their circumstances but they remain cautious. Their mood may still be impacted by the lingering effects of the Great Recession.

Yet there is a lot of psychology at work, including volatile financial markets, European weakness, a slowdown in China, rising Middle East tensions and now Ebola. All could still send a chill into consumer confidence, much like last year’s polar vortex.

Consumer credit

Credit conditions are improving. Consumers continue to choose and use credit very strategically. Revolving credit, though uneven over the past year, has risen recently. If employment and consumer confidence continue to improve as we expect, revolving credit may continue its healthy pace and help spur retail spending.

Consumers should benefit from easing price pressures. Summer weather was quite mild this year and gasoline prices have recently dropped, leading households to spend less on air conditioning and gas, freeing up more disposable income.

Additional Factors

As we observed last year, holiday retail sales can be severely impacted by any transitory factor from higher personal taxes and the debt ceiling debacle to a federal government shutdown and severe winter weather.

This year, it’s too soon to predict the weather but at least Congress has kept the government open and there is no immediate talk of tax increases (well, at least not federally).

And the forecast is …

There you have it.

We look at employment, income, consumer confidence and consumer credit, incorporate a few wild cards such as gas prices, the whims of Congress and the outbreak of epidemics, then come up with an educated and informed figure. It’s part science, part art.

In the grand scheme of things, consumers appear to be in a much better position this year than last, with a bit more confidence and spending power. These factors should translate into a solid holiday sales season for retailers and merchants alike. Nevertheless, shoppers will remain cautious and stick to their budgets this year — just in case we’re wrong.