US holiday sales to grow 3% again with promotions in focus, Mastercard forecasts

US retail sales are expected to rise 3.2% in the holiday season as companies look to deals to attract thrifty shoppers during a shorter-than-usual shopping window this year, a Mastercard (MA) forecast showed on Thursday.

In comparison, retail sales rose 3.1% between Nov. 1 and Dec. 24 of 2023, according to the report from Mastercard Economics Institute. Mastercard SpendingPulse measures in-store and online retail sales across all forms of payment, excluding automotive sales.

With consumers expected to be picky about their spending this year, retailers from Walmart (WMT) and Target (TGT) to Amazon.com (AMZN) and China's Shein and PDD Holdings (PDD)-owned Temu are all likely to roll out aggressive deals.

"Inflation continues to cool and consumers continue to expect – and demand – promotions and discounts. Discounts and promotions are no longer just 'nice to have'; they are essential," the report said.

A smaller shopping window this year - with only 27 days between Thanksgiving and Christmas - could also push retailers into launching higher promotions earlier in the season.

A Deloitte forecast showed US holiday sales are expected to grow at their slowest pace in six years.

Online sales are expected to jump 7.1% during the holiday season from last year, according to the Mastercard report.

Spending on big-ticket electronics including television and laptops could rise 6.7%, boosted by lower borrowing costs, cheaper prices and the replacement of older gadgets bought during the pandemic, the forecast showed.

Earlier this week, electronics retailer Best Buy said it would launch its holiday promotion event for its members at the end of the month.

Heading into the critical holiday season, the Federal Reserve on Wednesday kicked off an anticipated series of interest rate cuts with a hefty reduction of 50 basis points.

This should start to ease some of the financial pressures consumers have felt over the 2-1/2 years that the central bank battled with high inflation.

Meanwhile, consumer spending has been resilient, with US retail sales rising unexpectedly in August on strength in online purchases.

The labor market was positioned to continue generating steady wage gains that are supporting consumer spending and the overall economy, according to government data.

(Reporting by Savyata Mishra in Bengaluru; Editing by Devika Syamnath)