US retail trade group forecasts healthy holiday sales, in part due to inflation

NEW YORK — Don't count out U.S. shoppers when it comes to shelling out money for the winter holidays despite higher fuel prices and other financial pressures.

The nation's largest retail trade group said Thursday that it expects American consumers will collectively spend $1.01 trillion this November and December, which would be 4.2% more than during the same months last year.

The increase reflects more than seasonal good cheer, according to economists. The National Retail Federation and other organizations that have issued holiday forecasts said they expected higher consumer prices to account for about half of the anticipated growth. Moreover, higher income shoppers will fuel a lot of the spending, retail experts say.

“We all acknowledge households continue to navigate persistent inflation and uneven confidence about the economy,” National Retail Federation President and CEO Matthew Shay told reporters on Thursday. “But throughout the year, consumers have repeatedly shown that holidays and spending on loved ones are priorities. We’re confident that pattern is going to continue through the 2026 winter holidays.”

Retailers rang up $972 billion in holiday sales last year, which was 3.1% more than the year before that, the trade group said.

At 4.2%, NRF's growth projection is above the actual gains from the last 20 years, which averaged 3.1% when excluding the outsized holiday spending of pandemic-era 2020 and 2021, according to Mark Mathews, the trade group's chief economist.

The forecast, which was not adjusted for inflation, is in line with most other holiday predictions so far. The outlooks illustrate an ongoing disconnect between the dismal consumer confidence that shows up in monthly surveys and Americans' willingness to keep spending.

The U.S. war with Iran has driven up gasoline prices for drivers and caused worries about all kinds of products getting more expensive as high diesel prices make transporting goods costlier for retailers.

The average price for regular gasoline rose to $4.33 per gallon Thursday, according to motor club AAA. Before the war began, gas cost less than $3 a gallon.

Experts say such higher pump prices will continue to squeeze lower-income shoppers, while higher-income shoppers buoyed by stock market gains will keep splurging on discretionary purchases.

“We’ve seen disruption after disruption kind of knock people off kilter, and then the consumer comes roaring back,” Bryan Eshelman, a partner and managing director at AlixPartners, said.

Instead of pulling back altogether, consumers are changing their shopping habits by trading down to lower-price brands and stores, shopping earlier and relying more on credit cards and buy now pay later plans, Eshelman said.

Holiday spending accounts for 19% of the U.S. retail industry's annual sales, even more for some types of retailers, according to NRF.

Economists look at the holiday results as a gauge for the state of the consumer beyond the holidays. Consumer spending is monitored closely because it drives about 70% of U.S. gross domestic product.

“It not only tells us about the current state of the consumer, (but) it helps inform expectations for the year ahead as well," Mastercard Economics Institute chief economist Michelle Meyer said. “It gives us a lot of incredible insights into how consumers are doing from a macro perspective.”

The institute, which tracks spending across all payment methods including cash, forecast a 5.5% increase in holiday sales from Nov. 1 through Dec. 24 compared to last year.

Although Mastercard estimated that half of the growth would come from higher prices instead of more sales, the institute still expects healthy spending by shoppers because of a decent U.S. job market, Meyer said.

“I guess they feel some sense of security because the jobless numbers are so low," she said.

AlixPartners expects holiday sales numbers for October, November and December to expand 4% to 7% over the same three months last year, the firm said.

Adobe expects U.S. online sales to hit $275 billion this holiday season, representing 6.7% growth. That growth is a tad smaller than last year’s 6.8% increase from the previous year, the firm said.

NRF derives its holiday forecast through modeling with economic indicators, including monthly retail sales, consumer spending, disposable personal income, employment, wages and inflation. The group's calculations exclude automobile dealers, gasoline stations and restaurants.

The Labor Department's snapshot of inflation released Wednesday showed that U.S. inflation accelerated last month as gas prices went back up again and many other goods and services became more expensive. Higher prices are already starting to sap shopper spending.

The latest retail sales report from the Commerce Department, released Thursday, showed a solid 0.8% increase in September from the month before, but gasoline purchases made up a big chunk of the sales gain.

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