A Very Merry Holiday Spending Forecast

U.S. consumers are poised to give retailers the best holiday season in years, even as they worry about jobs, the stuttering economy, and a burgeoning federal deficit.

The good news was forecast back in January, when Moody’s Analytics’ Mark Zandi predicted that holiday sales would rise 3 to 4 percent. And now that summer’s over, says Scott Hoyt, Economy.com’s senior director of consumer economics, “if anything, we might upgrade it to 3.5 percent to 4.5 percent.” The National Retail Federation noted that sales rose 2.5 percent in the first quarter of 2010 and predicted a 3.5 per­cent bump in the second quarter. In July, the International Council of Shopping Centers said retail sales had been rising at a pace not seen in four years—4 percent per month, on average, from January through May.

Then June’s numbers came in. The ICSC reported that sales rose 3 percent—barely meeting its prediction of a 3–4 percent gain. Kantar Retail said sales at the 31 retail chains it tracks rose 3.2 percent in June, and senior economist Frank Badillo said retail recovery would be “challenged in the coming months.” And in July, the Federal Reserve announced that consumer credit decreased at an annual rate of 4.5 percent in May, including a 10.5 percent decrease in revolving credit. Fewer swipes of the country’s one and a half billion credit cards—combined with lower-than-expected June sales—had many market watchers on edge.

But compared with 2009: “Retail sales are higher than they were a year ago, despite the fact that revolving credit, which fuels such spending, is down significantly,” wrote Slate.com’s “Moneybox” columnist Daniel Gross on July 12. “The fact that people are buying more—but doing it with more cash and savings rather than debt—should be regarded as a sign of strength.”

Gross is bullish on Christmas but not irrationally exuberant. “I do think consumers will spend more than last year,” he tells JCK. “Even if job growth sputters along…it’s likely more people will be employed in October/November ’10 than in October/November ’09.” He expects “decent, not great” holiday sales, predicts a “3 to 3.5 percent same-store sales increase,” and foresees some of the luxury market doing “quite well.”

Among the mixed retail news released midyear, the MasterCard Advisors’ SpendingPulse June retail report said this about the jewelry industry: “Building on the solid growth numbers recorded from January through May of 2010, June’s jewelry data posted a very respectable 10.1 percent growth, keeping the category in positive territory for the eighth straight month.” Now that’s something to be merry about.