- The National Retail Federation, a trade organization for retailers that tallies up holiday shopping totals each year, forecasts a 3.6% increase in holiday shopping this year.
- We see several reasons to expect consumers to potentially open up their wallets this holiday season, including low financial obligations, steady job and wage gains, and high consumer confidence.
- Back-to-school shopping increases and solid stock market performance in 2016 also bode well for the holiday shopping season to deliver some cheer.
This week we preview the holiday shopping season. Although the market’s attention has been squarely on the election for the past several months, we should not forget how important this time of year is for the U.S. economy—consumer spending represents about two-thirds of the U.S. economy and roughly 30% of retail sales occur during the holiday season. Here we discuss prospects for holiday shopping, which we expect to deliver some holiday cheer.
HOLIDAY SALES OUTLOOK
The National Retail Federation (NRF), a trade organization for retailers that tallies up holiday shopping totals each year, forecasts a 3.6% increase in holiday shopping this year (excluding restaurants, autos, and gasoline). That compares with 3.2% growth in holiday sales in 2015 versus 2014. Included in these figures are online sales, expected to increase by between 7% and 10% year over year to roughly 9% of total retail sales, according to the NRF.
We see several reasons to expect consumers to potentially open up their wallets this holiday season, suggesting this target may be achievable:
· Consumers’ finances are in good shape. One of our favorite indicators for consumers’ spending power is the financial obligations ratio [Figure 1]. This ratio measures consumer obligations (such as mortgage and property tax payments, rents, consumer debt, car lease payments, etc.) relative to their ability to afford those obligations as measured by disposable income (income remaining after financial obligations are met). As Figure 1 shows, this measure is near its lowest levels in several decades and suggests consumers have the ability to spend.
· Job gains have been steady. Although the pace of job gains has slowed, the U.S. economy continues to add nearly 200 thousand jobs per month and has produced job gains for a record 73 straight months (as of October 2016). Filings for jobless claims are at their lowest levels since the 1970s. And wages, based on average hourly earnings, are growing nicely, rising 2.8% year over year in October 2016, up from 2.7% in September and the strongest since June of 2009.