Will Washington ruin Christmas?

The National Retail Federation showed its Christmas spirit on Thursday by releasing a holiday forecast that calls for sales to increase 3.9% to $602 billion and assumes the President and Congress will be able to resolve their differences.

NRF’s forecasted growth rate of 3.9% is a solid figure and well above the 3.3% average growth rate of the past 10 years and ahead of last year’s 3.5% gain. In addition, the trade group’s Shop.org digital division forecast that online sales would grow between 13% and 15% to roughly $82 billion.

“Our forecast is a realistic look at where we are right now in this economy – balancing continued uncertainty in Washington and an economy that has been teetering on incremental growth for years,” said NRF President and CEO Matthew Shay. “Overall, retailers are optimistic for the 2013 holiday season, hoping political debates over government spending and the debt ceiling do not erase any economic progress we’ve already made.”

Leading retailers such as Macy’s, Amazon and Walmart have in recent weeks signaled their optimism by announcing hiring plans that are at or above last year’s levels. Overall, retail industry seasonal hiring is expected to total between 720,000 and 780,000 workers, roughly in line with last year but above 13% higher than 2011.

Shay cautioned NRF’s forecast is contingent on the actions of the President and Congress in the coming weeks.

“Our forecast is also somewhat hinging on Congress and the Administration’s actions over the next 45 days; without action, we face the potential of losing the faith Americans have in their leaders, and the pursuant decrease in consumer confidence.”

Even with action, the faith Americans have in their leaders is greatly diminished, according to various polls, but when Christmas comes political bickering takes a back seat to real world economic considerations. On that front, NRF pointed to positive growth in the U.S. housing market and an increased consumer appetite to buy larger-ticket items as reason for retailers to be cautiously optimistic for solid holiday season gains. Those positive factors are offset by fiscal concerns around the debt ceiling and government funding, income growth and even policies and actions surrounding foreign affairs, all of which could impact holiday sales, according to NRF.

The Washington, D.C.-based group said the holiday season can account for anywhere from 20% to 40% of a retailer’s annual sales and accounts for approximately 20% of total industry annual sales.

The trade group’s chief economist, Jack Kleinhenz noted that the economy has been expanding at an unspectacular pace, but, “in order for consumers to turn out this holiday season, we need to see steady improvements in income and job growth, as well as an agreement from Washington that puts the economic recovery first.

He said NRF’s forecast, which is based on economic models that incorporate a range of consumer variables, leaves room for improvement while also providing what he called, “a very realistic look at the state of the American consumer and their confidence in our economy.”