Holiday sales growth this year is expected to be a bit more muted compared to past years, as consumers continue to grapple with affordability and cost-of-living challenges.
Independent forecasters predict that while there will be a year-over-year uptick in sales, that growth will be more modest. Inflation has been a lingering concern for consumers and retailers alike, and that will likely be reflected in how holiday shoppers approach this year’s season.
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Inflation is about a whole percentage point above the Federal Reserve’s preferred 2% level. It is running at 3%, according to the most recent Consumer Price Index report, which was released in September, due to the data blackout resulting from the shutdown.
“On an inflation-adjusted look, I don’t think it’s going to be as good a holiday season as it has been in previous years, and that it will be more heavily weighted towards the wealthier consumer spending, rather than the middle- and lower-income consumer,” Tom Arnold, a finance professor at the University of Richmond, told the Washington Examiner.
The National Retail Federation, the world’s largest retail trade association, predicts that holiday sales will increase between 3.7% and 4.2% from last year. For context, sales increased by 4.3% in 2024, 3.9% in 2023, 4.7% in 2022, and 12.5% in 2021, as the United States emerged from the pandemic.
NRF President and CEO Matthew Shay noted that consumer sentiment has declined, but he remains optimistic about consumer spending this holiday season.
“American consumers may be cautious in sentiment, yet remain fundamentally strong and continue to drive U.S. economic activity,” he said.
PwC’s 2025 Holiday Outlook survey found that consumers anticipate a 5% drop in holiday spending on average from last year. According to the survey, released in September, 84% of consumers expect to cut back over the next six months.
Deloitte’s forecast expects holiday sales to grow at the slowest pace since the pandemic, with annual growth in 2025 projected to expand between 2.9% and 3.4%, compared to 4.2% in 2024.
“While elevated inflation will likely weigh on the volume of retail sales growth, it will nevertheless be a tailwind for the dollar value spent on retail purchases in the holiday season,” said Akrur Barua, an economist with Deloitte Insights.
The predictions of slower growth come amid much uncertainty in the labor market. Fed Chairman Jerome Powell and many other economists have branded the labor market as being in a “low fire, low hire” state, meaning that while there are not mass layoffs, the economy is treading water.
“Many people are feeling blue about the prospect for the economy, an increasing number of people think the job market is going to deteriorate, and inflation and high prices are their No. 1 concern,” Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner.
The economy added 119,000 jobs in September, and the unemployment rate ticked up a tenth of a percentage point to 4.4%, the Bureau of Labor Statistics said Thursday in a report that was delayed by the 43-day government shutdown.
That headline number was better than expected, but there were also downward revisions to past months, which indicated that the labor market has been in worse shape than previously reported.
Notably, consumer sentiment has not been holding up well.
The final reading of the University of Michigan consumer sentiment index clocked in at 51 in November, down from 53.6 the month before, the group announced last Friday. That marks the lowest reading since June 2022, when the inflation rate was three times its current level.
Not only did consumer sentiment drop this month, but inflation expectations remain high, a worrying indicator.
“Year-ahead inflation expectations inched down from 4.6% last month to 4.5% this month,” said survey director Joanne Hsu. “This marks three consecutive months of declines, but short-run inflation expectations still remain above the 3.3% seen in January.”
Long-run inflation expectations softened a bit from 3.9% in October to 3.4% now. That is still above the Federal Reserve’s goal of 2% long-run inflation.
In the context of buying things for the holiday season, shopping has begun earlier in recent years, as retailers mark down items and advertise deals well in advance of the traditional Black Friday shopping week.
“The typical holiday shopper begins their efforts earlier and earlier, which can have a positive impact of mitigating the sort of hit to the budget, and we would hope that they don’t carry debt into the new year, creating a holiday shopping New Year’s debt hangover,” Hamrick said.
There is also a gradient when it comes to holiday shopping. High-income shoppers may feel a significantly less pronounced impact from macroeconomic conditions this year, while low- and middle-income shoppers will likely bear a greater burden.
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Still, overall, there are expectations that this year’s shopping season will be positive, but muted.
“We see definitely positive growth in retail sales for the holiday season, a little bit weaker than the years before,” Dan North, a senior economist with Allianz Trade Americas, told the Washington Examiner.