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How is consumer spending shaping up this holiday season?

Despite signs of slowing growth and a restrained consumer mood, Thanksgiving holiday weekend sales reached a record high. That bodes well for retailers whose profitability depends on a robust holiday shopping season.

Strong spending expected this holiday season chart illustration

With Thanksgiving weekend now in the rear-view mirror, the holiday shopping season is in full swing. Sales in November and December typically comprise close to 20% of total annual retail sales. As such, the tone of the holiday shopping season can provide meaningful insight into both consumer sentiment and financial health, and naturally has material implications for the profitability of the retail sector.

The chart above illustrates the growth of holiday season sales over the past 20 years. Sales growth, which is measured in nominal terms, has accelerated in recent years, lifted by rising prices and fueled by strong wage gains, an abundance of cash, and comparatively easy, inexpensive access to credit. Now, with labor conditions loosening and consumer finances tightening, how will growth shape up this holiday season?

According to forecasts from the National Retail Federation (NRF), 2023 holiday sales are projected to reach record levels, growing by a healthy 3–4% over last year. The Thanksgiving holiday weekend shopping numbers support these estimates, with a record 200 million shoppers showing up between Thanksgiving Day and Cyber Monday, according to the NRF. Adobe Analytics estimates indicated record spending over the holiday weekend, up nearly 8% from last year.

Strong early indications of holiday spending are certainly a positive for retailer results in the near term, indicating that consumer spending should remain a tailwind for growth in Q4. The degree to which this spending growth can continue at this pace could face challenges though, particularly as more borrowers fall behind in meeting monthly payments and the cost of borrowing rises.

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Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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