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Holiday sales could beat forecast despite inflation, COVID, says NRF economist

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Holiday sales could now grow as much as 11.5% over the same period in 2020.

Early signs point to a record holiday season for retailers.

That’s according to National Retail Federation chief economist Jack Kleinhenz, who said 2021 holiday season appears to be on track to exceed the group's  forecast for record spending despite supply chain disruptions, inflation and the new COVID-19 omicron variant.

“Now that we’re in December, the holiday shopping season is nearing the finish line,” Kleinhenz said. “The question is how have factors ranging from economic indicators to the twists of the COVID-19 pandemic affected the season so far, and what role will they play in the weeks that remain?”

While there is no crystal ball to provide a definitive answer, Kleinhenz said the latest data is encouraging and provides useful insights.

“In fact,” he added, “the season could turn out even better than we expected. Consumers and retailers have both revised their playbooks and broken with previous traditions. With the momentum we’ve seen so far likely to continue, it seems probable that we will exceed our initial projection.”

Kleinhenz’s remarks came in the December issue of NRF’s Monthly Economic Review, which said holiday retail sales during November and December could now grow as much as 11.5% over the same period in 2020. That is more than the 8.5% to 10.5% sales growth the NRF has forecast for November and December.

“The holiday season clearly looks to be off to a good start,” Kleinhenz said. “Consumers remain in solid financial shape and do not appear to be stretched.” With shopping starting earlier, the Thanksgiving weekend now helps to mark off the holiday season rather than serving as the kickoff it once was.”

Kleinhenz called the COVID-19 omicron variant “the latest wildcard raising uncertainty around the economic outlook,” but said it is too early to predict what impact it will have on the economy.

The first official holiday results won’t be known until the Census Bureau reports November sales on December 15. But overall consumer spending – beyond just retail sales – rose by 1.3% in October, the largest monthly increase since March, and “there was no evidence of a pullback” despite prices increases that have come with inflation caused by supply chain disruptions and increased demand, noted Kleinhenz.

Despite overall year-over-year inflation of 5% in October according to the Personal Consumer Expenditures Price Index, core retail categories were up only 3.3%.

During the past year, disposable personal income has been up 4.1% and spending has increased 12%. Initial unemployment claims fell to their lowest level since 1969 the weekend before Thanksgiving, and 546,000 jobs were added to payrolls in October, followed by another 210,000 in November.

In addition, the November unemployment rate fell to a new pandemic low of 4.2%. Continued strong growth rates will reduce the 4.2 million jobs needed to return employment to pre-pandemic levels, according to Kleinhenz.

The increased retail sales and strong economic indicators come despite falling consumer confidence. The University of Michigan Index of Consumer Sentiment declined to 67.4 in November, its lowest level in a decade. But Kleinhenz said spending data is a more relevant measure of consumer behavior.

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