ASU expert says holiday shopping season could top $1 trillion despite economic headwinds
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Each year, as the air turns crisp and storefronts sparkle with holiday displays, Americans prepare for a seasonal ritual that doubles as an economic powerhouse: holiday spending.
Whether it’s gifts, groceries or gadgets, consumer purchases in November and December have a profound impact on the U.S. economy, accounting for about one-fifth of annual retail sales.
This year, that impact may reach historic levels.
The National Retail Federation is forecasting the nation’s first-ever $1 trillion holiday shopping season, even as economic crosscurrents — from inflation and tariffs to layoffs and cautious consumer sentiment — create a complex backdrop. Behind the festive numbers lies a delicate balance of optimism and restraint. In short, people want to celebrate, but they’re watching prices more closely than ever.
Few people are better equipped to interpret that balance than Lee McPheters, research professor emeritus of economics in the W. P. Carey School of Business at Arizona State University and director of the school’s JPMorgan Chase Economic Outlook Center. McPheters has long analyzed the trends shaping Arizona and the national economy, tracking how factors like employment, inflation and consumer confidence play into everyday spending decisions.
In this Q&A with ASU News, McPheters discusses how e-commerce has transformed holiday shopping (growing more than sixfold since the early 2000s) and why gift cards remain America’s favorite present. He also explains why, despite economic uncertainty and the lowest seasonal hiring levels in 15 years, many analysts still expect consumers to open their wallets this winter.
From the price of Thanksgiving turkeys to the psychology of “holiday cheer,” McPheters offers a data-driven yet hopeful outlook for the season ahead, shedding light not only on where Americans will spend their money but what that spending reveals about the real state of the economy.
Question: How significant is the holiday season to the overall U.S. economy, in terms of consumer spending?
Answer: Looking at the big picture, consumer spending consistently accounts for approximately 70% of the total U.S. economy, as measured by gross domestic product. But there is a notable seasonal pattern: The two holiday months of November and December typically account for about 20% of annual retail spending.
Q: How has the increase in online shopping affected holiday spending?
A: The U.S. Census began to monitor e-commerce in 2000, when the internet became more accessible, and the growth since then has been remarkable. In the fourth quarter of 2004, e-commerce made up just 2.4% of retail sales. Even then, the fourth quarter was the strongest quarter of the year for e-commerce, and that pattern continues today. By 2024, that figure soared to 17.8% of retail sales, a sixfold increase in 20 years.
As smartphones became more popular, consumers started using the internet for in-store comparison shopping. Then by 2010, about 25% of holiday purchases were made online. In 2015, online Black Friday sales exceeded in-store sales for the first time. Now, the National Retail Federation predicts that 55% of consumers plan to make holiday purchases online in 2025.
Q: What are the spending predictions for this holiday season?
A: The National Retail Federation predicts the first $1 trillion holiday shopping season in 2025 — up about 4% from an estimated $976 billion in 2024. Other sources, including Mastercard and Deloitte, expect more moderate growth of around 3.5%.
Overall inflation so far this year is 3%, and tariffs have pushed up the costs of goods. As a result, there will be little to no increase, or maybe even a decrease, in “real” inflation-adjusted spending and the actual volume of holiday purchases.
Although grocery prices are 2.7% higher than they were in 2024, the cost of a typical Thanksgiving dinner should be somewhat lower than last year, thanks to a 3.7% drop in turkey prices and other items like potatoes and dinner rolls. However, some claims that Thanksgiving costs are down 25% are misleading — they often refer to fewer items and more reliance on store brands.
Q: What are the most popular holiday gifts, and have they changed over time?
A: According to the National Retail Federation 2025 survey, 50% of consumers prefer receiving a gift card as a present, a figure that hasn’t changed for the past five years. This makes perfect sense to economists because it provides maximum choice for the recipient, always seen as a positive. Other popular gifts include clothing, books and media, personal care items, and electronic devices and gadgets.
It’s worth noting that gift cards are not included in retail sales until they’re redeemed, which can push some spending into the following year.
Q: What economic headwinds could affect this year’s holiday season?
A: The cloud of uncertainty over the economy is a major concern. Consumer confidence is at a very low level, and layoffs are at their highest since 2009. Inflation is down from its 2022 peak, but the overall cost of living remains high. On top of that, tariffs have added to the costs of imported goods, such as toys and decorations from China. As a result, consumers are shopping more wisely and looking for sales. Online spending is expected to increase about 8% this year, as consumers compare prices and hunt for the best deals.
Meanwhile, the National Retail Federation projects that seasonal hiring by retailers will fall to its lowest level in 15 years — between 265,000 and 365,000 jobs, down from 442,000 in 2024. That means many seasonal workers will miss out on the extra income they depend on for holiday spending, adding to the current softness in the labor market due to layoffs and limited job openings.
Q: These challenges sound serious. Why are analysts still predicting growth in holiday spending?
A: Despite concerns and discontent about the economy, surveys are showing consumers are ready to spend in the coming holiday season. Credit card delinquencies remain low at about 3%, home equity borrowing is up, and 96% of workers are still employed. As in past holiday seasons, analysts expect consumers to brush aside their pessimism and splurge on the holidays — to enjoy a sense of normalcy and the comfort of “happy holidays,” even if that means spending a little more than they planned.
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