Holiday shoppers are expected to spend more this year, but their eagerness for value and hunger for deals is likely to push that growth back down to pre-pandemic levels, according to the National Retail Federation.

The major trade group expects sales in November and December to rise by 3% to 4% year over year. That would translate to between $957.3 billion and $966.6 billion in spending during the shopping season. The NRF’s forecast excludes spending at automobile dealers, gasoline stations and restaurants.

Over the past decade, holiday sales have grown roughly 5% year over year on average, according to the NRF. They spiked during the Covid pandemic, with sales surging by 9.3% in 2020 and 13.5% in 2021.

Before the pandemic-related spending boom, average sales growth between 2010 and 2019 was 3.6%, according to the NRF’s chief economist, Jack Kleinhenz.

The closely watched holiday spending forecast marks the latest prediction about how the crucial season may play out as contradictory factors — including low unemployment, cooling inflation, dwindling savings accounts, and the higher costs of mortgages and credit cards — shape U.S. consumers’ spending.

Even as inflation cools, many gift-giving items and food cost more. As of September, inflation is up 3.7% compared with a year ago, according to the Bureau of Labor Statistic’s consumer price index.

Elevated prices are driving the reported sales growth, too. The NRF’s holiday forecast is not adjusted for inflation, which means the actual sales gains may not be as large as they seem.

Kleinhenz, however, said the forecast still calls for true growth. He said based on the personal consumption expenditures price index, another government metric, inflation for retail and food services was up only 1.3% year over year. When gas and food services are taken out, prices are a half a percent to 1% higher than a year ago.

That dynamic, combined with higher wages and job security could give shoppers confidence to spring for gifts and decorations, NRF Chief Executive Matt Shay told reporters on a call Thursday. Still, Shay acknowledged the challenges of still elevated prices, higher interest rates and geopolitical threats, such as the risk of a government shutdown.

“Our sense is that the cumulative effect of all of these things is going to show some moderation in consumer behavior relative to the last several years of holiday spending,” he said.

Despite the NRF’s expectations for sales growth, major retailers including Target and Macy’s have tempered expectations for the holidays. Instead of hyping up the season, companies have adopted a more cautious approach, placing smaller orders of merchandise and emphasizing value in circulars, TV ads and signs in stores, for example.

Target CEO Brian Cornell said in an interview that aired Thursday on CNBC’s “Squawk Box” that shoppers aren’t just spending less on discretionary purchases. He said they’re also buying fewer groceries, as the company gears up for the peak shopping season.

Target, Walmart, Home Depot and others will share updates on sales trends and outlooks as part of quarterly earnings reports in mid-November.

In the year-ago holiday season, retail sales rose 5.3% compared with 2021 and reached $936.3 billion, according to the NRF. That fell short of its forecast for 6% to 8% growth, as inflation and higher interest rates dampened spending. The holiday total was not adjusted for inflation, so it included increases from many groceries, decorations and gifts costing more than the year prior.

Consumers expect to spend more this year, but also hunt for deals, according to the NRF’s latest consumer survey conducted by Prosper Insights & Analytics. According to the survey, which was conducted in early October, shoppers plan to spend $875 on average on holiday items, an increase of $42 compared with a year ago and roughly in line with the average holiday budget in the past five years.

Nearly 2 out of 3 people said sales and promotions are even more important to them this holiday season than the last one, according to the survey. And nearly 40% said they are cutting back in other areas to cover the cost of holiday items, such as trimming back what they buy for themselves or including fewer people on the gift-giving list.

Correction: This story has been updated to correct that the National Retail Federation expects 2023 holiday spending to come in between $957.3 billion and $966.6 billion, reflecting more specific estimates released by the NRF after a call with reporters.

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