Even with inflation persisting and increasing uncertainty over the economy, the National Retail Federation is projecting that 2022 holiday retail sales will be fine.
On Thursday, the NRF issued its annual holiday forecast: U.S. sales will grow between 6 and 8 percent over 2021, to between $942.6 billion and $960.4 billion. Last year’s holiday sales grew 13.5 percent over 2020 and totaled $889.3 billion, shattering previous records.
According to the NRF, holiday retail sales have averaged an increase of 4.9 percent over the past 10 years, so holiday 2022 by comparison could be a winning one for many retailers, judging from NRF’s outlook.
“While consumers are feeling the pressure of inflation and higher prices, and while there is continued stratification with consumer spending and behavior among households at different income levels, consumers remain resilient and continue to engage in commerce,” said NRF president and chief executive officer Matthew Shay. “In the face of these challenges, many households will supplement spending with savings and credit to provide a cushion and result in a positive holiday season.”
NRF also projected that online and other non-store sales, which are included in the total, to increase between 10 and 12 percent, to between $262.8 billion and $267.6 billion. This figure is up from $238.9 billion last year, which saw extraordinary growth in digital channels as consumers turned to online shopping to meet their holiday needs during the pandemic.
While spending online continues to grow, the rate of growth is slowing as shoppers this year increasingly shift back to visiting stores and malls.
Even adjusted for inflation, there will be some real growth at retail, in the low single digits this year, around 4 or 5 percent, according to NRF chief economist Jack Kleinhenz. “NRF’s holiday forecast takes a number of factors into consideration, but the overall outlook is generally positive as consumer fundamentals continue to support economic activity,” he said. He bases his outlook on the Personal Consumption Expenditures price index, which tracks inflation and deflation across several merchandise categories that the NRF also measures, rather than the Consumer Price Index. The NRF’s projection is for the November to December period, and excludes gas, auto and restaurant sales.
Both Shay and Kleinhenz said consumers are “steadfast” in their spending behavior.
But red flags have been raised recently. In October, Cowen & Co. stated in a report that “Holiday 2022 is shaping up to be a very different dynamic than 2021 given a multitude of macro pressures that are likely to negatively impact the level of holiday consumer spending versus prior years along with heightened inventory levels across the sector which have begun to trigger a ramp up in promotional markdowns.”
Consumer spending slowed sharply in July, raising fears that the U.S. will enter into a recession and Macy’s, Nordstrom and Kohl’s in their second-quarter reports reduced forecasts for the year.
“The holiday shopping season kicked off earlier this year — a growing trend in recent years — as shoppers are concerned about inflation and availability of products,” Kleinhenz said. “Retailers are responding to that demand, as we saw several major scheduled buying events in October. While this may result in some sales being pulled forward, we expect to see continued deals and promotions throughout the remaining months.”
Forty-six percent of holiday shoppers said they planned to browse or buy before November, according to NRF’s annual survey conducted by Prosper Insights & Analytics.
NRF expects retailers will hire between 450,000 and 600,000 seasonal workers. That compares with 669,800 seasonal hires in 2021.
The NRF pointed out that the National Oceanic and Atmospheric Administration is forecasting warmer-than-average temperatures for the Southwest, Gulf Coast and Eastern Seaboard, which could dampen sales of coats and cold weather accessories, though more wintry conditions are expected for parts of the northern tier.
NRF previously forecast that for all of 2022, retail sales will grow between 6 and 8 percent, consistent to holiday sales. For the first nine months of this year, retail sales have been up 7.2 percent, and retail sales have grown every month on a year-over-year basis since May 2020, according to the NRF. U.S. retail sales will surpass $4.86 trillion in 2022, the association added.
NRF’s holiday forecast is based on economic modeling that considers a variety of indicators including employment, wages, consumer confidence, disposable income, consumer credit, previous retail sales and weather.
In terms of spending levels, “We are seeing continued stratification among households,” said Shay. “It’s robust at higher income levels, and lower levels remain durable and resilient but those lower-income households are feeling the pinch of rising costs on everyday essentials.”
Shay said the holiday season continues to get expanded, which provides consumers with more time to shop. Consumers start browsing and exploring and purchasing well before November,” said Shay.
According to NRF’s research, nearly 45 percent of the population think it’s better to get gifts before November.
“This year’s growth, on top of last year’s 13.5 percent growth from 2020, signals the overall health of the consumer. Consumers are deeply engaged in the holiday season,” Shay said.
Other statistics from the NRF show that 56 percent of holiday shoppers plan to do some of their shopping online and 48 percent plan to shop at a discount store.
At the end of September, there were 800,000 full-time job openings in retail. Separately, retailers were expected to hire 450,000 to 600,000 seasonal workers, compared to 670,000 that were hired in 2021.
“The labor market is a real conundrum for employers,” said Shay.
Consumers have been saving, and are not overly leveraged, which is helping fuel retail sale. “We are a far cry from where we were during the Great Recession,” said Kleinhenz.
He expects next year the U.S. will have a slow growth economy, depending on how much the Federal Reserve changes rates. The Fed on Wednesday raised rates by another 0.75 percent and Fed chairman Jerome Powell has been tempering expectations of an easing up on increases. On Wednesday he stated, “We still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”