Economists Forecast Moderate Holiday Spending Growth

Job growth, increasing consumer confidence, and lower gas prices will fuel moderate spending growth this holiday season, according to a new study.

Wells Fargo Securities says it expects US sales to increase 3.9% this holiday season versus 2013. The projection is slightly lower than the 4.1% growth predicted by the National Retail Federation trade group.

“Despite a historically short shopping season of only 27 days this year, economic conditions have continued to improve and should provide a better footing for US consumers this holiday season,” said Michael Brown, a Wells Fargo economist and co-author of the report.

If the prediction holds true, 2014 will best last year’s 3.3% increase over 2012.

The National Retail Federation expects the average holiday shopper to spend $804.42 this year, compared with $767.42 last year. An NRF survey found 44% of shoppers plan to do their holiday shopping online.

Still, the projected spending increase comes amid somewhat mixed economic news. Year-over-year growth in “real disposable income,” a measure of spendable income after taxes and benefits, was just 2.7% in the third quarter of 2014, despite a 4.3% increase in personal income tied to lower unemployment rates. Overall fourth-quarter GDP growth is only expected to grow by about 1.6%.

However, Wells Fargo’s analysis suggests disposable income could increase in the coming weeks as a result of continued low gas prices.

Eugenio Aleman, a senior economist at Wells Fargo, said consumers generally are feeling better about their finances.

“The unemployment rate has dropped significantly from this time last year and consumers are feeling optimistic about the economy,” said Aleman, who co-authored the report. “We anticipate a happy holiday season for retailers and consumers alike.”

Wells Fargo expects the non-retailer, e-commerce, health and personal care, and food and drink sectors to show the strongest growth in the 2014 holiday season. Overall spending (including non-holiday-related spending), is expected to grow 4.1% this year.