October 27, 2016
Holiday sales are expected to jump in 2016 as increasingly confident consumers prepare to lavish spending on gifts for friends, relatives and business associates.
Several forecasts, including a closely followed one from the National Retail Federation (NFR), all predict a strong season for both brick-and-mortar stores and online merchants during the all-important weeks before Christmas. The peak shopping period begins on Black Friday – the sale-saturated day after Thanksgiving – and lasts till Christmas Eve.
The NRF predicts a 3.6% jump in sales this holiday season over 2015 when sales reached $626.1 billion. The increase surpasses the historical annual average by 1.1%.
“All of the fundamentals are in place, giving strength to consumers and leading up to believe that this will be a very positive holiday season,” NRF President and CEO Matthew Shay said.
Credit Card Debt Balances May Rise
While that is good news for businesses, it’s a warning to sign for consumers already struggling with credit card debt. One survey after the 2015 holiday shopping season revealed consumers added nearly $1,000 to their credit card debt balances with purchases made during the holiday season.
“January is a rude awakening for many consumers,” said Karen Carlson, Director of Education at InCharge Debt Solutions. “At 20 – 25% interest, a few thousand dollars in holiday debt can haunt you until Halloween 2017.”
Despite potential downdrafts from a tumultuous presidential election and an unseasonably warm fall, consumers are well-positioned to spend. The Conference Board’s Consumer Confidence Index, a monthly measure of how consumers view the nation’s economic condition, has been rising. In September, the index hit its highest level since the Great Recession in 2008. Meanwhile, the nation’s unemployment rate has hovered near 5% this year — less than half the rate during the economic downturn.
Economic Factors Forecast Spending
The NRF’s forecasting model is based on factors including consumer credit, housing and financial market information, disposable personal income and previous monthly retail sales data.
“Consumers are in a much stronger position compared to where they have been,” Shay said. “Consumers are the one element in the economy that really looks good.”
Holiday sales forecasts are notorious for changing after the shopping season gets underway, but economists can make educated guesses using new surveys and decades of sales data.
Average Household Holiday Spending
PricewaterhouseCoopers, one of the nation’s largest accounting firms, also has entered this year’s prediction arena with an optimistic forecast. The company suggests holiday spending will rise 10% from the 2015 season, with household spending averaging $1,121.
The biggest jump — 23% —is forecast for consumers earning less than $50,000 annually. That group is expected to spend $837 on gifts, travel and entertainment. Households earning more money are forecast to spend just 4% more than last year for an average of $1,388.
The PwC report didn’t speculate on why spending in lower-income households will rise so much more than their wealthier counterparts. It found that as wealth increases, spending will likely decrease. Those earning more than $150,000 are expected to spend less this year than last.
NPD Group, a retailing advisory and marketing firm, forecasts consumers will pay an average $636 this year, a 3% increase from 2015. Based on a survey, NDP found 14% of consumers plan to spend more than last year, and 17% said they would spend less. But just 12% of holiday shoppers this year said the state of the economy would have a “significant impact” how they spend, less than in the past two years.
NPD also pointed out that people often say they will hold the line on spending, then go over budget when they hit the stores. Last year, for instance, 16% of consumers said they would spend less than in 2014, but in a post-holiday survey, 20% said they spent more than they had planned.
Credit cards remain the preferred method for buying gifts. Consumer added nearly $1,000 to their credit card debt during the holiday season of 2015. NPD said 57% of shoppers used credit cards for at least some of their holiday season purchases in 2015, resulting in 22% still having 2015 holiday debt to pay off in fall 2016.
Online Sales and Digital Interaction to Drive Holiday Sales
Both PwC and the NRF predict a double-digit increase in online holiday retail sales, continuing a long-running trend. Online sales accounted for $61.9 billion of holiday sales in 2015. PwC forecasts a 25% rise in digital sales. Most of that ($56.4 billion) came from desktop sales, while almost $13 billion came from sales via mobile devices like smartphones and tablets.
The NRF expects a 7 – 10% increase in non-store sales, which totaled $105 billion in 2015.
Little more than a decade ago, online sales were a tiny part of the mix. This year, NPD predicts online purchases will account for 38% of all holiday sales, up from 33% in 2015 and 29% in 2014.
Even if shoppers aren’t making the bulk of their purchases online, they are relying on digital devices for research. Financial services company Deloitte LLP forecast a digital interaction will play a role, directly or indirectly, in 67% of all holiday purchases this year.
Merchants and travel companies won’t know if this growing consumer optimism will translate into a banner sales year until after all the receipts are tallied. But that hasn’t stopped retailers from preemptively hiring hundreds of thousands of extra sales workers for the holiday rush, just as they did last year.
The NRF predicts 640,000 – 690,000 seasonal workers will be added to payrolls during the holiday shopping season, in line with last year’s 675,000. The strength of consumer spending will likely determine the portion of those jobs that become full-time positions in 2017.
- (2016, October 10) Glad Tidings for Retailers This Holiday Season. Retrieved from: https://www.npd.com/wps/portal/npd/us/news/press-releases/2016/glad-tidings-for-retailers-this-holiday-season/
- (2016, September 27) The Conference Board Consumer Confidence Index Increased in September. Retrieved from: https://www.conference-board.org/data/consumerconfidence.cfm
- Reynolds, T. (2016, October 4) National Retail Federation Forecasts Holiday Sales to Increase 3.6%. Retrieved from: https://nrf.com/media/press-releases/national-retail-federation-forecasts-holiday-sales-increase-36
- Weisbaum, H. (2016, October 18) Consumers Will Spend Almost $800 Billion on Holiday Shopping. Retrieved from: http://www.nbcnews.com/business/consumer/consumers-will-spend-almost-800-billion-holiday-shopping-n667646
- Howland, D. (2016, October 6) PwC: Holiday Spending Poised to Surge 10% over 2015. Retrieved from: http://www.retaildive.com/news/pwc-holiday-spending-poised-to-surge-10-over-2015/427564/
- NA, (2016, January 8) Final 205 Desktop Online Holiday Sales Reach $56.4 Billion, Up 6 Percent vs. Year Ago. Retrieved from https://www.comscore.com/Insights/Press-Releases/2016/1/Final-2015-Desktop-Online-Holiday-Sales-Reach-56-Billion-Up-6-Percent-vs-Year-Ago