Shockwaves on prices and murmuring of massive layoffs abound at cocktail parties and in discussions with retail and brand executives alike. Current thinking is the second half of the year and holidays are going to be a bust.
This situation and current leadership style is leading to much hand-wringing these days in the corporate suites of the nation’s retailers and brands, and who can blame them? Between tariff turbulence, a slowdown in GDP growth, an uptick in inflation, and a purported softening labor market, the headlines suggest conditions are ripe for a seasonal dud, yet results still come in strong from consumer buying.
EMARKETER, which crunches data for the industry, has forecast “a rare deceleration … as tariffs and ongoing uncertainty drag sales growth to its lowest level since we began tracking the metric in 2009.” That was during the depths of the Great Recession.
EMARKETER predicts holiday sales (November and December) will rise by an anemic 1.2% (versus 1.5% a year earlier), which it says “will prevent brands and retailers from banking on the season to compensate for the rest of the year.”
If rising tariffs do contribute to inflation this year, it may not be driven by merchants ratcheting up prices. As we noted here last fall during the national election, when talk of higher tariffs was in the headlines, the discussions among industry execs was that they expected to have to absorb those costs rather than passing them on to inflation-weary customers.
Instead of raising prices, retailers have been re-sourcing goods, haggling with suppliers, and using other strategies to avoid drawing complaints from the public and unwanted attention from politicians. For now, the best retail strategy seems to be to keep your prices and your heads down.
Among the dire predictions of the effects tariffs may have on consumers is a recent estimate by the nonpartisan Budget Lab at Yale University that they could—theoretically—end up costing the average household $2,400 a year in “equivalent … income loss.” For a wide swath of today’s “average” households, that would—theoretically—be a big problem which, in turn, could make for a dismal retail season.
But consumers are not just data points that can be extrapolated. They are sentient beings.
Instead of paying $8 for a jar of fancy pasta sauce, they shift to buying the store brand for $4. They are driving less to big box stores to load up on essentials and shopping more in the neighborhood, picking up smaller quantities. They are getting thrifty.
What does all this mean for the second half of the year and the critical fourth quarter of 2025? Perhaps even 2026 planning?
According to a recent report by software giant Salesforce, consumers are in a pretty good mood. Salesforce reported that in April a third of consumers were optimistic about the economy, a 22% increase over a year earlier. More people said their financial conditions were improving, that they were prioritizing saving and investment, and more likely to spend their money on goods rather than experiences. Predicted Salesforce, “Consumer optimism will turn a corner ahead of the holidays.”
So, despite the relentless blizzard of scary headlines and the pervasive air of uncertainty in the U.S. economy, the next four months between now and the New Year may, when viewed in the rearview mirror, look like just another average holiday season. After all, consumers showed up during the pandemic shutdown and weathered the subsequent spike in inflation, far bigger shocks to the economy than anything we’re experiencing today.
The question is…”Is the current data available fully accurate on predicting how consumers feel?”
With so many economic variables, forecasting is at best a guessing game.
Nevertheless, the National Retail Federation (NRF) is projecting annual U.S. retail sales will grow between 2.7% and 3.7% over 2024. The lower end of the range is about the same as the latest readings on inflation, which are a far cry from the dire predictions of some critics of the tariff strategy.
The high end of the NRF estimate matches the long-term pre-pandemic average of 3.6% and would be in line with the growth rate in both 2023 and 2024—in other words, a return to normal.
Growth that falls anywhere in between could be considered a respectable result, given the context. So, after all, there still might be a present under the Christmas tree for everyone.
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