Monthly Economic Review: February 2021

2021 February MER

A holiday season to remember

Consumers were torn between excitement over the holidays and worries about the coronavirus pandemic during the 2020 holiday shopping season. But confidence from recovering economic indicators combined with a desire to forget about the pandemic and celebrate for a moment appear to have been behind a holiday spending increase that was even larger than NRF had expected.

U.S. holiday sales rose 8.3 percent in 2020 from a year earlier despite the economic challenges of the pandemic. That was the highest holiday growth rate in records going back to 2002 — topping 6.8 percent in 2004 — and more than double the 3.5 percent average increase over the previous five years, including 2019’s 4 percent gain. Consumers’ ability to spend was bolstered by the stimulus payments they received earlier in the year and the money they saved by not traveling, dining out or attending entertainment events. Rising record wealth from increasing home values and stock prices also provided support for holiday spending. And consumers were likely encouraged by the news of COVID-19 vaccines becoming available, which helped offset concerns about increased infection rates and state restrictions on activity. Nonetheless, there was a sharp split among consumers with different resources: While sales were at record levels, many Americans struggled during the holiday season as millions remained without jobs and others were working fewer hours.

Total sales for the November-December holiday season (excluding automobile dealers, gasoline stations and restaurants) came to $789.4 billion, easily exceeding NRF’s forecast that sales would grow between 3.6 percent and 5.2 percent to between $755.3 billion and $766.7 billion. These are preliminary results based on Census Bureau data and are subject to revision in the coming months but nonetheless represent a record year for holiday sales despite unprecedented challenges. Year-over-year retail sales growth for all 12 months of 2020 was 6.8 percent, exceeding the pre-pandemic trend.

The holiday total includes online and other non-store sales, which were a standout this holiday season, growing 23.9 percent year over year to $209 billion as consumers shopped more online whether they made their purchases from pureplay online sellers or traditional retailers’ websites. That compared with 14.7 percent growth in 2019 and represented 26.5 percent of total sales during the holiday season. (Non-store sales include catalog sales and miscellaneous categories such as vending machines or kiosks, but are made up mostly of online sales, offering a close approximation of ecommerce-only data that will become available later.)

This was not a typical holiday season and it took place amid an unprecedented shopping landscape. There was a push and pull between the emotion of the holidays and the rise in COVID-19 cases, with the crisis throwing off many consumers’ shopping cadence. Retailers kicked off promotions and sales in October to create excitement and encourage consumers to shop safe and shop early. Because of the pandemic, most big box and mall stores were closed on Thanksgiving Day, reversing a trend of opening on the holiday in recent years. In the third and fourth weeks of December, holiday-related spending picked up. At that point, it was too late to expect delivery of online purchases by Christmas, but consumers turned to quick in-and-out trips to stores and took advantage of buy online, pick up in-store/curbside services retailers had perfected over the past several months.

When we assembled our 2020 holiday forecast, we knew one possible scenario was that results could come in high and that sales might exceed the forecast. The economist John Maynard Keynes once remarked that economic activity results from rational motivations but can also be governed by “animal spirits” that are not necessarily rational and that those spirits are a key cause for fluctuations in the economy. As such, household emotions likely played into holiday economic decisions as consumers wanting to offset the anxiety and stress experienced during 2020 spent on gifts to enjoy a better-than-normal holiday. This was clearly a year when animal spirits outweighed conventional wisdom.

Consumer behavior and spending will be shaped by current events in the months ahead — most of all the pandemic — and getting through the period won’t be easy. The latest tracking reports show employment weakening in the early months of 2021 and COVID-19 death and illness rates remain tragically high.

The pandemic is far from over, but it won’t last forever. How different will customers be in a post-pandemic world? It is not easy to say since the COVID-19 crisis has had such a profound impact on people’s behaviors. These changes have shaped consumer decisions on how they live, work, shop, learn and play, and many of those decisions could carry over once the pandemic is over. Retailers should examine these changes closely and prepare to match the shopping experience with consumers’ new needs and expectations.

Past issues

Monthly Economic Review: November 2023
2023 Holiday sales will have a ‘whole new set of dynamics’.
Read more
Holiday Sales Will Have a ‘Whole New Set of Dynamics’
Every retail holiday season since the pandemic has been unique, and that will be the case again this year.
Read more
Monthly Economic Review: October 2023
Economy continues to grow despite new challenges.
Read more