Holiday sales to be much stronger this year nationally — and in Pittsburgh
Gus Faucher is the senior vice president and chief economist of The PNC Financial Services Group. He shares his insights on the regional economy each month.
The holiday shopping season is underway, and a lot of the talk is around potential shortages of typical gifts. At the same time, there is concern that higher inflation may lead shoppers to cut back on their seasonal purchases.
But while supply-chain shortages and higher prices are negatives for this holiday season compared to 2020, there are many more positives. As a result, holiday sales growth this year will be in the double digits both nationally and in the Pittsburgh area. And while some of the increase in holiday sales will be because of higher prices, much more of the increase will come from higher sales volumes.
There certainly are shortages of some traditional holiday goods, particularly imported goods, because of strong demand and global supply-chain issues. Since the pandemic, Americans have been buying a lot more products, both because they have extra income from increased federal spending on households, and because they have been buying fewer services due to business closures and concern about the coronavirus.
Some foreign factories have shut down because of COVID-19 outbreaks, while others are having difficulties in getting the parts they need. And there have been huge backlogs at U.S. ports, as well as other transportation bottlenecks, both domestically and abroad, that are delaying deliveries of holiday goods.
Another factor that is a drag on holiday spending is higher prices. Consumer inflation has surged as very strong demand has coincided with pandemic-related shortages, allowing businesses to raise prices.
The Consumer Price Index, a measure of household inflation, was up more than 6% in October compared to a year earlier, the fastest pace in more than 30 years. Higher prices on holiday items may deter some purchases, and higher prices for staples like food and gasoline may crowd out spending on gifts.
But the positives for holiday spending far outweigh these negatives.
The biggest plus is that households are sitting on a lot of cash to make purchases. Among three rounds of special stimulus payments from the federal government in 2020 and early 2021; expanded eligibility for unemployment insurance benefits and an increase in benefit levels (although those expired nationally in September); the new child tax credit; and reduced opportunities to spend during the pandemic, households have an extra $2.5 trillion in savings compared to before the pandemic, which gives them plenty of cash to buy presents.
Another positive for holiday spending this year is the recovering labor market. The economy has added almost 6 million jobs over the past year, and the average hourly wage is up almost 6% from 2020.
Other positives include very low interest rates, making it less expensive to borrow, and rising household wealth, thanks to the booming stock market and higher home values.
These same positives for holiday shopping also are present In the Pittsburgh area.
Local employment is up by about 30,000 over the past year. Wage growth has lagged somewhat behind the national average, but is still running at around 5% annually. And local home values have increased by about 15% over the past year, making Pittsburgh-area households wealthier and more likely to spend on presents.
After flat holiday spending nationally in 2020 compared to 2019, spending this year is set to increase around 15%, by far the biggest gain on record. While about 40% of that increase (or 6 percentage points) will come from higher prices, the remaining 60% (9 percentage points) will come from higher sales volumes — larger quantities of purchases.
Unlike during previous holiday seasons, when much of the growth in spending came via online sales, instore and online sales will increase at about the same pace in 2021 as people return to in-person shopping. Holiday sales growth in the Pittsburgh area will be closer to 10% this year, with roughly the same proportions of price increases and quantity increases as in the rest of the country. Weaker job and wage growth, as well as the Pittsburgh area’s gradually falling population, account for the subpar local performance.
One potential drag on holiday spending could be a lack of retail workers.
There are about 3 million fewer people in the U.S. labor force compared to before the pandemic for a number of reasons, including early retirements, concern about the pandemic, and reduced access to childcare. Employers throughout the economy are reporting difficulties in finding workers, especially in lower-wage, face-to-face positions, such as traditional retailing. If businesses can’t find the workers needed to meet strong consumer demand, sales growth could suffer.