U.S. holiday spending surges to 12-year high, helped by tax cuts

Low unemployment and high consumer confidence helped deliver a gift to retailers this holiday; record high spending. Here’s a look at the current climate and expectations for the rest of 2017.

U.S. holiday spending jumped 5.5 percent - its biggest gain since 2005 - spurred by stronger employment, rising consumer confidence and expectations of higher wages and bonuses after the recent tax bill, the National Retail Federation said on Friday.

Sales in November and December rose to $691.9 billion, compared with $655.8 billion the previous year, excluding sales at restaurants, automobile dealers and gasoline stations. The NRF previously forecast sales would rise 3.6 to 4 percent for the period. Holiday sales can account for up to 40 percent of annual sales for some stores.

While strong sales were widely expected, many retailers were particularly hungry to prove themselves this past holiday season, following a year marred by tumbling stock prices, management shakeups, a slew of store closures and several industry bankruptcies.

The Dow Jones Retailers Index was up 1.5 percent on Friday afternoon, led by jumps in the stock prices of Amazon.com Inc, Target Corp and Wal-Mart Stores Inc, among others.

NRF Chief Economist Jack Kleinhenz said a number of factors contributed to surging consumer confidence including a pickup in income, a rising stock market, unemployment levels at 17-year lows and the timing of the tax cuts.

"When that got passed and companies started to announce bonuses and wage increases, the consumer felt very much more at ease going into the holiday season and spending," Kleinhenz said in an interview, adding the possible tax cuts had not been accounted for in the NRF's forecast.

Several large U.S. employers, including Walmart, American Airlines Group Inc, AT&T Inc and Wells Fargo & Co , have announced employee bonuses or wage increases after U.S. President Donald Trump's tax overhaul in December cut the corporate tax rate to 21 percent from 35 percent.

Kleinhenz also said retailers had the right mix of inventory, pricing and staffing to help connect with shoppers.

Struggling with competition from Amazon and off-price stores, traditional retailers have worked hard to address changing consumer habits by lowering prices, sprucing up physical stores and websites and improving delivery options.