NRF's Matt Shay: We're seeing consumers behave positively ahead of the holiday shopping season

Here's a summary of the provided YouTube video transcript:

Key Concepts

• Holiday Shopping Season: The period of increased consumer spending leading up to and including major holidays.
• NRF's Annual Holiday Forecast: The National Retail Federation's projection of retail sales for the holiday season.
• Consumer Confidence: Consumers' overall sentiment about the economy and their personal financial situation.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Economic Forecast: A projection of future economic conditions, often based on various macroeconomic indicators.
• Consumer Survey: Data collected from consumers about their attitudes and planned spending.
• Macroeconomic Indicators: Broad economic factors that influence the overall economy, such as GDP, inflation, and employment.
• Resilience: The ability of consumers and businesses to withstand and recover from economic adversity and uncertainty.
• Tariffs: Taxes imposed on imported goods.
• Government Shutdown: A situation where non-essential government functions cease due to a lack of appropriated funds.

Holiday Spending Projections and Consumer Behavior

The holiday shopping season is in full swing, with the National Retail Federation (NRF) forecasting that consumers will spend over $1 trillion in retail sales for the first time ever in November and December. Matthew Shay, President and CEO of the NRF, attributes this increase in spending primarily to consumer confidence, rather than solely rising inflation.

Shay acknowledges that consumer confidence numbers may appear low, but historical data, particularly from the last five years since the pandemic, shows that consumers can simultaneously hold negative views about the economy while continuing to engage in commerce. He emphasizes that consumers work diligently to protect the holiday season for themselves and their families, creating a "moat" around this time of year to make necessary investments. This protection is achieved by seeking value, prioritizing convenience, and in some cases, reducing savings or taking on more debt.

Regarding inflation, Shay notes that with the exception of the last couple of months, the trend line for goods inflation has been nearly flat, and food inflation has been around 1% (with some category exceptions). This suggests real growth in spending power.

Discrepancy Between Survey Data and Economic Forecast

A point of discussion was the apparent discrepancy between a consumer survey and the NRF's economic forecast. A chart indicated that per-person spending on gifts, food, and decorations was projected to be slightly down ($890 this year compared to $902 last year). However, the overall consumer spending forecast is up 4.2%, projecting $1 trillion in sales.

Shay clarified that the chart reflected a consumer survey conducted about six weeks prior, which captured attitudes at that specific moment. This survey was likely influenced by factors like the government shutdown. In contrast, the NRF's economic forecast (3.7% to 4.2% growth, totaling $1 trillion) is an economic projection based on approximately 20 different macroeconomic indicators. This forecast has a proven track record of reliability over 20 years. Shay reiterated that consumers often state they will spend less but then spend more when faced with major shopping events like Black Friday, Cyber Monday, and Super Saturday.

Retail Mood and Economic Resilience

Despite weaker-than-anticipated retail sales numbers from September (which are considered outdated), Shay highlighted positive indicators from the CNBC-NRF Retail Monitor for October, showing consumers re-engaging in commerce. He also noted that recent earnings calls from retailers have been generally positive, even amidst economic uncertainties, on-again, off-again tariffs, and the government shutdown.

The key word used to describe the current retail environment and consumer behavior is "resilient." Shay defined resilience as the ability to deal with adversity constructively. He argued that consumers and retailers, especially, have faced significant adversity, uncertainty, lack of predictability, and volatility throughout the year. Despite these challenges, consumers continue to play an increasingly significant role in economic activity and contribute to GDP.

While inflation remains a concern, wages are slightly ahead of inflation, providing consumers with real spending and purchasing power. The jobs market, though often discussed, is historically strong. This underlying strength, combined with consumers' desire to protect the holiday season, underpins the positive spending forecast.

Conclusion

The NRF's holiday spending forecast of over $1 trillion signifies robust consumer engagement, driven by a combination of confidence and a strong desire to celebrate the holiday season, despite broader economic uncertainties. While consumer sentiment surveys may show caution, actual spending behavior, particularly during peak shopping periods, demonstrates resilience and a commitment to holiday traditions. The NRF's economic forecast, based on a comprehensive analysis of macroeconomic indicators, provides a more reliable prediction of actual retail sales than snapshot consumer attitude surveys. The retail sector is characterized by its ability to adapt and thrive amidst various economic challenges.