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Holiday Sales Expected to Rise 3.7 Percent

  • Associated Press

Sales clerks ring up customers at Walmart in Bentonville, Arkansas, Nov. 27, 2014.

Sales clerks ring up customers at Walmart in Bentonville, Arkansas, Nov. 27, 2014.

Americans are expected to spend at a slower pace than last year during the crucial winter holidays, weighed down by sluggish wage growth and other factors, according to the nation's largest retail industry trade group.

The National Retail Federation, based in Washington, D.C., predicts holiday spending will be up 3.7 percent to $630.5 billion, slower than the 4.1 percent increase during last year's November-December period.

It would mark the first slowdown since 2012, when retailers were hurt by Super Storm Sandy, which disrupted households and businesses for months, as well as other distractions like a stalemate in Congress.

The dollar figure excludes sales from autos, gas and restaurants but includes online spending. The group estimates that online spending should be up 6 percent to 8 percent for the two-month period to as much as $105 billion. That would be in line with the 5.8 percent increase over last year's holiday season.

Still, the holiday sales estimate is much higher than the 10-year average of 2.5 percent. But the growth has been choppy since the deep downturn of 2008 when holiday sales fell 4.6 percent from the previous year.

"While economic indicators have improved in several areas, Americans remain somewhat torn between their desire and their ability to spend," said Matthew Shay, CEO and president of the National Retail Federation in a release. "The fact remains consumers still have the weight of the economy on their minds, further explaining the complex retail spending environment we are seeing right now."

The estimate is a barometer for retailers that depend on the last two months of the year, which on average, account for nearly 20 percent of annual retail industry sales. The figure also offers some insight into the mindset of the consumers, which make up to 70 percent of economic activity.

Shoppers are faced with mixed messages. The U.S. economy looks healthy. In fact, economic growth is at a 3.9 percent annual rate from April through June, and unemployment has dropped to a seven year low of 5.1 percent. And consumer confidence in September is the highest since January.

But investor concerns about an economic slowdown in China, the world's second largest economy, and other emerging markets have caused turmoil in the financial markets. And the September job report issued last Friday that shows U.S. employers cut back sharply on hiring raises concern that the U.S. economy is weakening.

Moreover, analysts say the only reason why the unemployment rate remains at 5.1 percent is because many Americans have stopped looking for work and are no longer counted as unemployed. And Americans are struggling with sluggish wage growth. Hourly wages are up 2.2 percent in the past year and haven't kept up with higher daily costs.

Stores are also grappling with shoppers' shift away from clothing and other traditional merchandise and more toward experiences like spas, concert tickets or big ticket necessities like cars.

The National Retail Federation group said that a slower pace of job growth weighed down the forecast. And it also took into account a big wild card: potential disruptions from yet another government shutdown in mid-December that could also affect spending. And the group believes the consumer shift toward services and big-ticket items could hurt sales at traditional stores.

Steve Barr, PwC's retail and consumer leader, believes the divide between the haves and have nots continues to widen given an uneven economic recovery. For the second year in a row, PwC US didn't offer one holiday sales forecast but instead broke down holiday spending into groups.

Based on a survey of 2,000 shoppers, it found those who make under $50,000 plan to spend an average of $681 for the holidays, less than a year ago. And those who make more than $50,000 a year said they plan to spend an average of $1,331, which is more than they did a year ago. PwC calls the lower income group "survivalists" and the higher income group "selectionists."

For the first time, PWc included spending on experiences like concert tickets and travel so it couldn't provide a year-ago dollar comparison. And PwC highlighted millennials, ages 25 to 35, estimated to spend 52 percent of their holiday spending on experiences. That compares with 24 percent for older shoppers.

The PwC survey showed the wealthier shopper plans to focus on buying top brands and cutting edge products while the lower income shopper will focus on deals.

"Especially for the survivalist shopper, it's going to be very hard for retailers to pull back from promotions and deals," Barr said. "We've permanently conditioned the consumer."

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