Bulls on holiday spending in the U.S. for 2019 are certainly in abundance.
But why is the holiday season expected to be so strong this year? After all, 2018 was the year of the tax cuts, so shouldn't that create a tough comparable?
The answer is no. In 2018, holiday spending rose just 2.1% over 2017, as the government shutdown and stock market volatility weighed on consumer sentiment. Now, the National Retail Federation is expecting growth of 4% over 2018, for a total of just under $730 billion. CFRA analysts are looking for roughly $1 trillion of spend, even though they warn against buying consumer discretionary stocks in light of the trade war.
Chief Economist at LendingTree, Tendayi Kapfidze says that "the set up for the consumer this year is much better than it was last year, so I think we might see growth around 5% or 6% even, compared to around 2% last year."
Here's what could drive that result.
"Wage growth has continued this year, so that's good for consumers," Kapfidze said. "Wage growth has been just under 4% in 2019, slightly better than what it was in 2018."
Also, "I think certainly some consumers will be borrowing on their credit cards to spend this year," said Kapfidze. "We have lower interest rates both from the Fed as well as in the mortgage market." Treasury yields along the entire curve have fallen considerably in 2019 and usually, a drop in credit card rates follows.
As for mortgage rates, the third piece to the spending puzzle gets interesting: "Why it matters in the mortgage market is that we've had quite a lot of refinancing this year and we've also had an increase in home buying," Kapfidze said.
And here's what follows a strong housing market: "Home buying typically spurs other spending on other products and refinancing lowers your mortgage interest rate payments, or maybe you even get cash out of your refinance and that gives you more money to spend," said Kapfidze.