This year's holiday shopping season could prove to be a boon for US retailers, laying earlier concerns of a year-end drop-off in consumer spending to rest.

Peak retail season, which is the months of November and December combined, is expected to generate 2.8% more in holiday retail sales than in 2022, adjusted for an expected 0.5% increase in retail prices, according to a recent S&P Global Market Intelligence analysis. Those sales include all retail spending except at automobile dealerships, gasoline stations and food services.

A positive outlook on the holiday shopping season would be a welcome departure from 2022's flat real sales growth for retailers, many of whom have planned carefully to meet consumer demand this year.

"Retailers are walking a fine line this year, hoping to pass on the cost increases they've faced in recent years without seeing a large drop in sales," said Michael Zdinak, an economist who leads the US consumer markets service at S&P Global Market Intelligence.

Changing trends

Retailers will likely lean on more and earlier holiday deals to entice consumers to spend, Zdinak said.

Despite expectations of a "really solid holiday season," Target Corp. will maintain a cautious inventory positioning in markdown-sensitive categories for the holidays, CEO Brian Cornell said during a Nov. 15 earnings call. Companies will also have to adapt to consumers' holiday shopping preferences, including the growing online marketplace. Market Intelligence forecasts suggest one in every four dollars will be spent online this holiday season, with expectations of 9.4% annual growth in online sales.

Robust port volumes indicate retailers are eager to respond to the forecast demand upswing. Two of the busiest US ports, the Port of Long Beach and the Port of Los Angeles, had increases of 23.6% and 11% in imported cargo in October, respectively.

Port of Long Beach CEO Mario Cordero said in a statement that he expected moderate growth through the end of the year as retailers stock up for the holiday season.

Wonderful Christmastime?

Not all signs point to a rosy holiday season for retailers.

When asked about changes to their holiday shopping plans this year, over two-thirds of consumers said they were curtailing their spending compared to the previous year, according to a November Market Intelligence survey on consumer spending.

Consumers showed more price sensitivity and shopped for discounts amid mixed reports on retail sales and consumer spending in the Federal Reserve's latest summary of commentary on economic conditions throughout the US.

Growth in consumer spending slowed to 0.2% in October, reflecting a spending increase of just 0.1% on goods. Gasoline and other energy goods were the main contributor to the uptick in spending within the goods category.

The US Census Bureau will release November retail sales figures on Dec. 14, offering another view on how consumers fared heading into the holiday shopping season.

Still, wage growth and cooling inflation alongside stabilized retail inventories and intensified competition among retailers could mean consumers will emerge the merriest from this holiday season, said Zdinak with Market Intelligence.

"In a real sense, consumers can expect their holiday dollars to go further in 2023," noted Zdinak. "This year, the holidays came early for consumers."