Zions economist expecting retail cheer

Brice Wallace 

Despite inflation’s stranglehold on the economy in 2022, consumer spending this holiday season is expected to top levels seen in 2021.

The National Retail Federation is forecasting spending to be 6 percent to 8 percent higher than a year ago, reaching between $942.6 billion and $960.4 billion. E-commerce is expected to be 10 percent to 12 percent higher. Meanwhile,{mprestriction ids="1,3"} Gallup predicts holiday spending to reach its highest point in three years — since before the COVID pandemic. It expects the average American consumer to spend $932 on gifts this season, up from last year’s average of $837 and nearly matching levels seen in 2019.

“With consumers feeling more hopeful and price pressures easing, this holiday season could bring cheer to retailers and the economy,” Robert Spendlove, Zions Bank senior economist, said at the bank’s economic news conference last week.

Several statistics buoy such hope. With lowering inflation, the U.S. Commerce Department reported that U.S. retail sales grew 1.3 percent in October, the largest monthly gain since February. And in Utah, consumer sentiment rose from September to October, according to the Kem C. Gardner Institute’s Survey of Utah Consumers.

Spendlove noted that not all retailers expect the same results, as Target predicts a drop in holiday sales while Walmart boosted its expectations based on stronger-than-expected third-quarter sales.

“Things really are starting to come back to pre-pandemic levels,” said Bill Sartain, owner of The Tutoring Toy in Salt Lake City along with his wife, Diane. “They’re not quite all the way back, but the signs are all pointing in the right direction.”

For the 34-year-old business, the fourth quarter “sustains us for the entire year,” Sartain said. The first three quarters of the year, the store relies on birthday party sales. When the pandemic hit, “birthday parties came to a screeching halt, and so it was a little rough going,” he said.

Birthday parties are rebounding but are still not as big as they once were. “So the struggle still remains,” Sartain said. “And that’s why the fourth quarter, the Christmas season, is particularly important for us.”

Meanwhile, consumers’ inflation fears linger. One study shows that 40 percent of consumers say inflation will impact their holiday shopping decisions. The expected increase in holiday spending is a result of both people buying more and also paying more for what they buy, Spendlove said. Consumers already experienced it this fall, with inflation in October being 7.7 percent higher than a year ago, and during Thanksgiving, when the cost of holiday meals was up 20 percent.

That means many holiday buyers will be looking for sales and discounts or buying fewer items this year compared to last year.

“People will feel the pinch of higher prices in certain areas. For instance, surging food and energy prices may leave consumers nervous about the cost of holiday travel, meals and heating their homes,” Spendlove said.

Helping smooth the holiday season this year are falling shipping container and freight costs and fewer supply chain snags, he said. In September 2021, the averages rate for a 40-foot shipping container from Asia to the U.S. topped $20,000. Today, it’s just over $2,500.

Supply chain issues that led to a lack of inventory last year have likewise eased, with some retailers reporting excess inventory piling up in storerooms and warehouses. “This may translate into more supply and better deals for customers this holiday season,” Spendlove said.

For Sartain, that’s good news for his store, which offers nearly 25,000 products from all over the world. “So, if we’re not able to find something in one source, we have opportunities to find similar toys from other countries,” he said.

Both Spendlove and Sartain urged Utahns to shop locally this season. Spendlove said 99 percent of Utah businesses are small businesses, employing half of the state’s workforce. He and Sartain both said money spent locally remains in the local economy, with Sartain estimating it at 70 percent, far above 40 percent of sales made online.{/mprestriction}