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Record Holiday Spending Anticipated Despite Economic Challenges

Despite facing economic hurdles such as steep borrowing costs, ongoing inflation, and the resumption of student loan repayments, shoppers are anticipated to set a new spending record this holiday season. The National Retail Federation (NRF) has released projections indicating a 3% to 4% year-over-year increase in sales for November and December, amounting to approximately $957.3 billion to $966.6 billion, marking the highest spending level ever recorded.

In the 2022 holiday season, consumers spent around $930 billion, reflecting a 5.4% increase from the previous year. While sales are expected to rise this year as well, the NRF predicts a slower growth pace compared to the average 5% rate observed over the past decade. This estimate aligns more closely with the growth rate experienced between 2010 and 2019, excluding the stimulus-boosted pandemic years, during which holiday sales surged by 9.3% in 2020 and 13.5% in 2021.

NRF CEO Matthew Shay acknowledged consumer caution due to inflation, rising interest rates, and monetary policy decisions. Despite these concerns, consumers are continuing to prioritize household spending. A robust job market and significant wage hikes have supported consumer spending in recent months. However, experts anticipate a more cautious approach from consumers as student loan payments resume and high-interest rates persist. Additionally, an increasing number of Americans are relying on credit cards for essential expenses.

Credit card debt surpassed $1 trillion earlier this year, and delinquencies spiked to an 11-year high in August. While inflation has decreased in recent months, it still remains at 3.7% compared to the same period last year, according to Labor Department data. High inflation has placed financial strain on many households, particularly low-income Americans, amplifying the impact of price fluctuations on their already stretched budgets.

Retail giant Walmart, considered a barometer for the retail industry and the broader economy, has expressed caution about consumer spending in the latter half of the year. Risks to profit margins, including the resumption of student loan payments, rising gas prices, and high-interest rates, were cited as potential concerns.

Several brands and retailers, including American Eagle Outfitters, Carter’s, Crocs, Foot Locker, Canada Goose, Gap, Nordstrom, Nike, Steve Madden, Under Armour, and Victoria’s Secret, are expected to be affected by reduced spending accompanying the restart of student loan payments, as indicated in a recent UBS note. NRF CEO Matthew Shay emphasized that these factors, in combination, are likely to lead to a moderation in consumer behavior compared to the past few years of holiday spending.

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