NRF forecast: 2022 holiday retail sales to rise 6-8%, slowing growth

The National Retail Federation expects consumers to remain resilient, despite inflation.

gift box lot
Holiday sales are expected to i(Photo by Juliana Malta on Unsplash)

One of the most-watched projections for peak shopping season is in: Holiday sales in the US are expected to be "healthy" in 2022, even as growth slows from pandemic-era records, according to a new forecast from the trade association for retailers.

The news: Holiday retail sales are projected to grow 6-8% on an annual basis in 2022, according to a forecast from the National Retail Federation. That would put spending between Nov. 1 and Dec. 31 between $942.6 billion and $960.4 billion.

This year's pre-holiday picture of the consumer economy is being shaped by inflation and the Federal Reserve's efforts to cool demand. However, retail sales have held up in the months leading up to the high shopping season, and NRF expects that trend to continue.

“While consumers are feeling the pressure of inflation and higher prices, and while there is continued stratification with consumer spending and behavior among households at different income levels, consumers remain resilient and continue to engage in commerce,” NRF President and CEO Matthew Shay said. “In the face of these challenges, many households will supplement spending with savings and credit to provide a cushion and result in a positive holiday season.”

Below are more takeaways from the forecast, which factors in a range of economic factors, from consumer spending and disposable income to employment and weather. It excludes spending at automobile dealers, gasoline stations and restaurants.

The growth would slow from last year. In 2021, holiday sales grew 13.5% over 2020 and totaled $889.3 billion. That broke records at a time when goods were in high demand. This followed 2020, which had set the record in itself with a 9.3% increase. The average increase over the last 10 years is 4.9%.

While sales growth outpace inflation? This year’s holiday season arrives at a time of 40-year-high inflation. So, when it comes to calculating growth, the question is whether spending totals will outpace the rise in prices. Based on NRF's measure, this forecast would put growth of spending slightly ahead of price increases. In September, the measure of inflation from the US Bureau of Economic Analysis’ personal consumption expenditures (PCE) price index that drops out categories like energy and auto sales was running at a 4-5% increase year-over-year, according to NRF Chief Economist Jack Kleinhenz. So 6-8% growth would be ahead of that. Other inflation rates are more in the range of the forecast. The Consumer Price Index's core measure showed a 6.6% increase in September. While these rates may vary, a clearer answer may lie in whether the volume of goods purchased rises, alongside price.

NRF's forecast is in the range of growth in retail sales over recent months. According to the NRF’s own calculation, which backs out sales of gas, cars and restaurants to focus on core categories, retail sales rose 7.2% year-over-year in September.

It’s also in line with other forecasts.A group of initial holiday season forecasts released in September had similar ranges, even if NRF was slightly more optimistic by suggesting the potential for 8% growth. Deloitte's range is 4-6%, AlixPartners expects 4-7% growth, while MasterCard projects 7.1%. Bain & Co. expects 7.5% growth.

NRF's measure of holiday sales growth. (Courtesy photo)

Ecommerce is expected to outpace overall retail sales. Online and non-store sales are expected to grow 10-12% during the holidays, which would net $262.8 billion-$267.6 billion. Ecommerce grew its profile among consumers during the pandemic, and will “remain important,” even as consumers return to in-store shopping in more numbers this year.

Holiday deals started earlier. The time range of the forecast means it doesn’t account for all of the holiday sales this year. Amazon, Walmart, Target and Wayfair all ran early holiday deals events during October, signaling a push to capture those consumers spreading out their purchases. “While this may result in some sales being pulled forward, we expect to see continued deals and promotions throughout the remaining months,” said Kleinhenz.

Here are several more economic trends shaping this year’s holiday spending:

A strong labor market. A continuing tight labor market has been a head-scratcher for the Federal Reserve as it seeks to bring down inflation, but it’s a boon for retail spending. Jobs numbers for October released Friday by the Labor Department showed the economy continues to create new jobs, and the unemployment rate still at a historically low 3.7% despite moving higher. Wages grew 4.7% from a year ago. The income stability offered by the robust job market will carry over to gifts and personal purchases, Kleinhenz said.

Household stratification. Inflation is affecting households differently. Higher-income and middle-income households are continuing to spend. But lower income households are “feeling the pinch,” in being able to afford gas, groceries, and other everyday essentials, said Shay. With discretionary spending more limited as the costs of gas and food are up, people are also looking for discounts.

Savings and credit. While inflation is bringing challenges, consumers still have savings built up from the pandemic to spend on holiday gifts. NRF expects many will also turn to credit to fund purchases, which will in turn buoy spending.

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