The National Retail Federation, the retail trade association, reported November 6 that consumer engagement — a measure of how brands are actively building an ongoing relationship with their customers — remains positive in the run-up to the biggest shopping period of the year around the Thanksgiving and Christmas holiday. Although monthly retail sales have been choppy month to month, for the year to September 30, they’re up 5% year on year, said NRF President and CEO Matthew Shay at a press conference. “We’re seeing positive engagement from consumers, and that’s been somewhat of a surprise,” Shay said. In fact, consumer spending is currently 68% of U.S. GDP, the highest it’s been for 15 years. 

The NRF says its prediction is that holiday sales will increase 3.7%-4.2% compared with last year’s holiday season, to an all-time record total of $1.01 trillion-$1.02 trillion – the first time it will pass $1 trillion (it was $976 billion last year). 

The positive outlooks – at least in the short term – comes at a time when U.S. consumer sentiment fell in October to a five-month low, and at least one measure of current conditions regarding consumer confidence dropped to the lowest since August 2022, according to Yahoo Finance. In fact, the drop in consumer confidence in the economy overall is even more dire. “You have to go back to the 80s to find similarly low levels of [consumer] sentiment,” said NRF Chief Economist and Executive Director of Research Mark Mathews.

All the same, forecasting has become increasingly challenging, Shay said, because of the lack of data currently available during the U.S. government shutdown, along with the unpredictable nature of the tariffs on U.S. imports on which so many retailers rely. 

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Shay suggested that the willingness of consumers to keep spending was largely due to the “creative” work of retailers to avoid passing on price increases, along with pre-loading inventory inventory earlier in the year, and generally riding the waves of stop-and-start tariffs. 

“Spending has been strong throughout the year, but consumers are being much more price-sensitive. They’re thinking about things much more carefully, and trying to find value wherever they can find it,” said Shay. “That’s had implications for the industry.”

But, Shay said, consumer spending around the holiday season effectively has a “moat around it,” because consumers plan for these purchases for family and loved ones, meaning they save for them and prioritize them, even at the expense of other outgoings such as automobiles, travel and eating out. “Somehow, every year, Santa comes, and we think that’s going to happen again this year,” he predicted. “We’re bullish about spending this holiday season.”

Matthews said the timing of the U.S. government’s shutdown was “problematic,” and causing dip in income which affects how much money people have in their pockets approaching the biggest gift-buying part of the year, which might drive down overall economic incomes, at least for a while. Matthews pointed out that the last shutdown in 2018-2019, which lasted 35 days, also over the holiday season, but much later (it began December 22, when most holiday gifts were already under the tree), had a relatively minor overall impact of 0.2% on GDP, because things recovered quickly once the government reopened. 

A slowdown in consumer spending tends to lead to a slower pace of growth in labor as well, noted NRF Senior Economic Advisor Jack Kleinhenz, pointing to the reduction in numbers of immigrant workers as a factor. But the most recent data shows that private employment continued to grow through October, despite multiple high-profile announcements of mass layoffs, such as at Amazon. “Many times these announcements don’t go through as numbers in actuality,” said Kleinhenz. He also noted that wage growth has continued to be fairly strong, with the Federal Reserve’s wage tracker showing about 4% growth year on year, ahead of inflation. “So wages continue to grow at steady pace, although weaker than in past years,” said Kleinhenz.