2025 holiday sales outlook

Summary

Consumers face a range of headwinds this holiday season—from a cooling jobs market and tariff concerns to a broad decline in confidence. These challenges may cause consumers to slow their roll but will ultimately not stop them from getting out and spending this season. The very uneasiness that is spooking consumers may itself be a factor that drives consumption for households in search of comfort and a sense of normalcy. We forecast holiday sales to rise between 3.5% and 4.0% over last year.

Signs of tariffs will be all over the holidays this year. Even as the tariff impact has been contained thus far when it comes to overall consumer inflation, gifts are likely to cost more this year. Not only is the holiday-spending basket looking more expensive, but the prices of many holiday-related services are also up big, eating into the ability of consumers to spend more on traditional gifts this season.

Out of fear of higher prices from tariffs, consumers pulled forward purchases of discretionary goods earlier this year. This builds on top of the existing transition to online spending which has motivated consumers to purchase more throughout the year rather than waiting for the holidays. Spending more earlier means potentially less to be spent later this year.

Higher prices mean gift certificates may be an "it" gift this year, particularly for budget-conscious consumers looking to stick to a specific dollar amount. This could be another headwind to holiday sales, but it would also come with a boost to sales in early 2026 as gift cards get marked as purchases at time of redemption.

Beyond inflation concerns, consumers are also more worried about their job prospects. While the labor market has softened, most of the working age population is still drawing a paycheck, though wage gains are weaker than in years past, limiting the amount of money that can flow towards gifts this season. Households may therefore increasingly turn back to the credit card or non-traditional forms of borrowing like buy-now, pay-later services to spend.

With the deck stacked against the consumer, why then are we forecasting a decent holiday sales season? Have you heard of retail therapy? The continued uneasiness that households are reporting may be the very thing that supports spending this year. Persistent pessimism since the pandemic despite resilient spending suggests households may continue to splurge in search of comfort and a sense of normalcy around the holidays.

Our forecast for a 3.5%-4.0% gain ultimately calls for a decent pace of holiday spending this year. If realized, it would fall just below the long-run annual average as headwinds around tariffs lead to some consumer restraint.

One thing to note for our recurring readers: this year is unusual in that we’re publishing this note just as the federal government shutdown has entered its third week, which means we do not have the September retail sales data. Rather than waiting to have the latest data in hand, we’ll fine-tune our holiday sales forecast range as more data become available.

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