A Merry Holiday Season for the Economy

Consumer spending shifts away from goods toward services, yet online sales continue to rise.

holiday small businesses

What's on Santa's nice list this year? A good holiday season for consumer spending, according to Gus Faucher, PNC’s chief economist.

Consumers are more confident in their own finances and the economy than they have been in decades. Due to this high confidence, PNC expects holiday spending to jump about 4.5 percent from 2016. Only about one percentage point of that will come from higher prices, noted Faucher.

Online Sales Rule

Once again, experts expect holiday shoppers will flock online for bargains and convenience. Traditional brick-and-mortar retailers likely will face another lackluster season.

"Traditional retailers won't benefit much from the stronger holiday sales we expect to see this year," said Faucher. "In part, it's because consumer spending is moving toward services and away from goods. But more important is the rapid shift to online spending." Sales at non-store retailers are rising at a double-digit pace, while department stores are lagging behind.

Employment in retail also is down by more than 100,000 from its peak earlier this year. "Although retailers will hire more staff for the holidays, jobs at brick-and-mortar stores will steadily decline over the long run,” said Faucher.

However, online sales will continue to create new jobs in fields like information technology, transportation and warehousing.

Reasons to be Merry

What's boosting the merry forecast for holiday spending this year?

  • More jobs and higher wages, giving households more money to spend on holiday purchases
  • Low inflation, giving consumers more buying power.
  • Record-high stock prices and rising home values, boosting household wealth and loosening purse strings.
  • Household debt, which is at historic lows.
  • Low interest rates, making borrowing cheap.

The U.S. economy is in solid shape at the end of 2017 and will continue to improve well into 2018. "With a good holiday season, consumer spending will remain the foundation for the economic expansion," added Faucher. PNC expects an increase in short-term interest rates in December, and three more throughout 2018.

 View more economic reports from PNC »

Gus Faucher
Gus Faucher expects a solid year for holiday spending, with much of the boost going to online retailers.
The 2017 holiday season will be a good one, with solid economic fundamentals supporting moderate growth in consumer purchases. But traditional retail, which has been under increasing pressure from the movement toward online sales, will continue to struggle.

- Gus Faucher