American retailers are projected to generate over $1 trillion in holiday sales for the first time this year, reflecting a 4.2 percent increase compared with last year’s $972 billion, according to a forecast released Thursday by the National Retail Federation (NRF). Sales during November and December are expected to reach approximately $1.013 trillion, surpassing the 3.1 percent growth recorded in 2022.

Despite the record-breaking forecast, the economic landscape behind these figures remains uneven. Higher-income households are driving much of the spending growth, while many lower-income consumers continue to feel the strain of rising prices for essential items such as food and fuel. Mark Matthews, chief economist at the NRF, described the economy as “k-shaped,” with wealthier households maintaining stronger financial positions and lower-income groups facing ongoing challenges.

Although the situation has improved somewhat since last year—when lower-income households cut back on spending—most income brackets are now seeing year-over-year increases in retail purchases. Nonetheless, spending remains heavily concentrated among wealthier consumers, with the top 10 percent of shoppers accounting for up to 70 percent of sales in certain retail segments.

Retailers face additional challenges related to increasing operational costs, especially higher shipping expenses driven by rising diesel prices. The NRF anticipates that prices for everyday goods, including apparel, electronics, and household products, will climb at a faster pace this season than in the previous year. Supply chain pressures are compounded by surging demand for computer chips amid growth in artificial intelligence infrastructure, contributing to price increases of more than 12 percent for select electronics such as televisions, audio equipment, cameras, and computers, according to new data from the U.S. Bureau of Economic Analysis.

Higher gas prices are also expected to limit discretionary spending for some households. Early this year, excess tax refunds helped offset fuel cost increases, but that effect has diminished, Matthews noted.

Retailers are unlikely to fully pass these cost increases onto consumers due to intense competition and the heightened price sensitivity of shoppers. Instead, many businesses have absorbed tariff-related expenses in recent years and may adopt a similar approach for rising freight costs. “Consumers are very, very, very value conscious right now,” Matthews said.

The role of digital technology is expanding, with more shoppers turning to online tools to find deals. The NRF observed a significant rise last year in the use of artificial intelligence (AI) applications for holiday gift shopping, and Chief Executive Matthew Shay expects AI-driven assistance to have an even larger presence this season.

To manage growing consumer demand, retailers have begun hiring seasonal workers and are projected to add between 325,000 and 375,000 temporary positions this holiday season, a level comparable to last year’s estimated 356,000 jobs.