U.S. retailers are anticipating robust holiday spending this year despite ongoing inflationary pressures and rising fuel costs, according to forecasts released Thursday. The National Retail Federation (NRF) projects that Americans will collectively spend $1.01 trillion during the November and December period, representing a 4.2% increase over the same months in 2023. This rise would surpass the average holiday sales growth of 3.1% observed over the past two decades, excluding the pandemic-driven surges of 2020 and 2021.

Economists attribute roughly half of the expected growth to higher consumer prices rather than increased purchase volume. Higher-income shoppers are expected to drive much of the spending, supported by gains in the stock market and relatively favorable job market conditions. Conversely, elevated gasoline prices—averaging $4.33 per gallon as of Thursday, up from under $3 prior to recent geopolitical tensions—are likely to constrain lower-income consumers.

“Households continue to navigate persistent inflation and uneven confidence about the economy,” said Matthew Shay, president and CEO of the NRF. “But throughout the year, consumers have repeatedly shown that holidays and spending on loved ones are priorities.” Last year, holiday sales totaled $972 billion, a 3.1% increase from 2022.

Despite broad concerns about the economy, consumer spending has remained resilient. Experts note that shoppers are adapting by shifting purchases to lower-cost brands and retailers, shopping earlier than usual, and relying more on credit options such as buy-now-pay-later plans. Bryan Eshelman, a managing director at AlixPartners, described consumer behavior as “roaring back” after periods of disruption.

Holiday sales typically constitute about 19% of annual retail revenue, making these figures an important barometer for the broader economy. Consumer spending accounts for approximately 70% of U.S. GDP, so these trends have significant implications. Michelle Meyer, chief economist at Mastercard Economics Institute, noted that holiday spending offers insights into overall economic health and future consumer sentiment. The institute forecasts a 5.5% increase in sales between November 1 and December 24 compared to last year, with half the growth attributed to price increases rather than higher sales volumes.

Projections from other firms underline the optimistic outlook. AlixPartners expects holiday sales from October through December to rise between 4% and 7%, while analytics firm Adobe anticipates U.S. online sales will grow 6.7% to reach $275 billion this season, slightly below last year’s 6.8% increase.

These forecasts come amid mixed economic signals. The Labor Department’s recent inflation report showed an acceleration in prices, largely driven by climbing gas costs and higher expenses for goods and services. Meanwhile, the Commerce Department reported a 0.8% increase in retail sales in September, with gasoline purchases accounting for a significant share of the rise.

Overall, while inflation and fuel prices continue to pose challenges, a robust labor market and adaptive consumer behavior are expected to underpin strong holiday spending in the United States this year.