U.S. retailers may be in for a tepid holiday season with consumers unsure about the state of the economy and how it impacts their spending capabilities, an early holiday season sales forecast indicates.

That is not to say that this year’s holiday season is doomed. Retailers will likely see an improvement over last year’s sales figures but are unlikely to see holiday blowout sales.

“We are cautiously optimistic about the holiday season,” said John Harmon, senior retail and technology analyst at retail research and advisory firm Coresight Research.

According to Coresight Research, the 2023 holiday season sales between October and December will be up by just low-single digits compared to last year, when sales rose by 5.3%.

The expected slowdown in sales this year will be a function of various factors presently at play. Even though the job market remains strong and wages are starting to improve, consumers are still dealing with stubborn inflation in key spending categories such as gas, housing, and groceries, which is impacting their ability to spend on discretionary items.

Against this backdrop, student loan repayments are expected to resume soon, and consumer credit debt has surpassed $1 trillion for the first time in history.

Still, consumers are showing an appetite for holiday shopping, even if not to an extent seen in the years before.

“So far, consumers really seem to have the desire, will, and ability to keep spending,” Harmon said. “Barring any cataclysmic event, things seem to be moving in that direction, and we don’t foresee a huge risk to holiday spending.”

This year, buying presents, in particular, might emerge as a key sales driver, according to Marshal Cohen, chief retail analyst at market research firm Circana.

“The good news is there will be pent-up demand on the gifting side of the equation,” Cohen said. “Spending on essentials, and a lot less on discretionary products, means we have a lot of catching up to do by holiday time and a long list of desires to share with those giving gifts.”

It is worth noting that making predictions for this year’s holiday season is challenging because of variations in consumer shopping and spending behavior over the last two years.

“The patterns of holiday spending have changed. It doesn’t all happen in the fourth quarter these days,” Harmon said.

Harmon added that the U.S. retail industry has also been observing a “smearing effect,” wherein retailers such as Amazon and Walmart have been dolling out holiday discounts as early as October 2023, elongating the holiday sales season. That trend was first observed in 2021 and then again in 2022 — and will likely be seen again in 2023, with retailers already starting to offer holiday deals.

Home Depot, for example, reportedly began offering holiday-inspired products, such as giant Santa Claus yard decorations, life-size dancing Grinch, and other festive items, on its website last week. The decision came in response to consumers’ interest in shopping early instead of waiting for last-minute deals and shipping delays.