Will Holiday Spending Pump Up or Peter Out?
The misleading headline, “2023 Holiday to Reach Record Spending Levels” from the National Retail Federation (NRF), might lead you to think that the 2023 holiday season will be a smash hit. Before anyone pops the early-holiday champagne corks, investment guru Barry Ritholtz has long noted how flawed the NRF survey has been. He says that there have always been problems with the annual NRF holiday projections, because “the trade group, full of biases, randomly surveys shoppers on what they plan to spend this holiday season, and what they spent last year, with stunning regularity, the forecasts turn out to be wrong.”
Even if the actual NRF numbers come to pass, a sales increase of 3-4 percent in 2023 would be the slowest pace since 2019, before the pandemic. So regardless of whether or not NRF hits their target this year, the question weighing on economists and investors is whether consumer spending will pump up or peter out this holiday season.
EY-Parthenon anticipates a “moderate” increase in holiday spending this year, “with risks leaning to the downside.” Part of that downside risk is due to some signals from retailers themselves, who are preparing for just a so-so season. Some are bracing themselves for the reality that many shoppers have already depleted their pandemic-era savings and are struggling under the weight of high interest rates on their outstanding debt, still-elevated prices, and the resumption of student loan payments. The more downbeat forecasts believe that taken together, these facts could amount to a more muted holiday spend in 2023.
Perhaps that is why holiday hiring is off from previous high levels. According to outplacement-services firm Challenger, Gray & Christmas, retailers will likely add the lowest number of jobs this holiday season in a decade. One company bucking the holiday hiring trend is Amazon, which announced that this quarter, it would add 250,000 people “in full-time, part-time, and seasonal fulfillment center and transportation roles in hundreds of cities and towns across the U.S.” The uptick is likely due to the continuing trend of holiday shopping moving from brick and mortar to online. EY notes that online sales represented 14 percent of holiday spending in 2019 and this year, they believe that online sales will represent 19-20 percent of the total. (Notably, when WalMart reported third quarter earnings results, it said that U.S. e-commerce sales rose 24 percent, which helped boost overall sales by 4.9 percent.)
Adobe expects U.S. online holiday sales to grow by 4.8 percent from a year ago, with shopping on mobile devices “expected to hit a major milestone, surpassing desktop and driving over half (51.2 percent) of all online spending this season.” To combat the pressure on consumers, Adobe anticipates online discounts will hit record highs, “up to 35 percent off listed prices,” with toys, electronics and apparel leading the way with the best deals.
If consumers show up for the holiday shopping season, it could further buoy the overall economy. Third quarter growth, as measured by the Gross Domestic Product, accelerated at an astonishing 4.9 percent annualized pace. The fourth quarter will not be as strong, with estimates ranging from 0.9 to 2 percent. Even with the deceleration, barring something terrible occurring before the end of the year, it appears that the U.S. economy has successfully avoided a recession in 2023 and grew in line with pre-pandemic years.
As always, consumers hold the key to the question of whether or not a recession is on the horizon for 2024. So far, there is little evidence that the consumer is rolling over and retrenching, which could mean that the much hoped for “soft landing” may become a reality after all.