Retailers are projecting slower growth this holiday shopping season as inflation, higher borrowing costs, and the resumption of student loan repayments cause many consumers to pull back.
Holiday sales will increase by up to 4% this year, not adjusted for inflation, the National Retail Federation said Thursday in its annual projection. Holiday sales grew 5.4% last year.
“There are some headwinds impacting consumers,” National Retail Federation CEO Matthew Shay said on a call with reporters. “Consumers are becoming more cautious.”
Consumer spending this year has remained strong despite high inflation and rising interest rates. The government reported that strong consumer spending drove the economy to a robust 4.9% annual growth rate in the July-September quarter.
But after the summer of splurging, some economists and consumer analysts anticipate that those and other pressures could cause that resilience to buckle — perhaps meaningfully so — during the critical holiday season. Consumer confidence dropped for the third consecutive month despite the booming economy.
October’s decline in consumer confidence came as “consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular,” Dana Peterson, chief economist at the Conference Board, an economic think tank, said in a statement on Tuesday. “Consumers also expressed concerns about the political situation and higher interest rates,” she said.
Consumers with a household income between $25,000 to $35,000 saw the biggest decline in confidence about the economy over the past month.
The resumption of student loan repayments last month after a three-year pause could also impact consumer spending.
“Student loan repayments will diminish the already dwindling savings among younger households,” Moody’s said in a report this week.
Retailers are expected to ramp up discounts over the holidays to draw consumers.
Shoppers will “be looking for deals, for discounts, finding ways to make the most of monthly paychecks,” Shay said. “Spending will be done in a deliberate way.”
The trade group expects retailers will hire between 345,000 and 450,000 seasonal workers, in line with 391,000 seasonal hires last year.
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