U.S consumers, who have been reluctant to spend their savings from low fuel costs, are expected to open their wallets wider this Christmas season, a sign that they are becoming more optimistic about the economy, analysts say.
Buoyed by low energy prices and higher wages, consumers are expected to spend $655.8 billion this Christmas season, up 3.6 percent from last year, according to the National Retail Federation.
"We have actually seen a pickup in disposable income and that may be a reflection that energy prices are a little bit lower," said Rob Lutts, president and chief investment officer for Cabot Wealth Management.
The holiday shopping season is crucial for most retailers as it's when they normally begin to turn a profit.
This year's Christmas shopping forecast by the retail federation is slightly higher than the 3.2 increase in spending retailers saw in 2015, and higher than the average increase seen since the recession ended in 2009.
Many analysts and economists expected retail sales to get a lift when energy costs, primarily gasoline prices, first dropped in 2014 as a worldwide glut of oil lowered crude prices and other energy costs. Consumers also saw cheaper energy bills as a result of lower natural gas prices.
However, the drop in energy costs never spurred consumer spending as many people remained concerned about the economy and stagnant wages. Instead of spending, consumers saved or used the extra money to pay down debt.
There are now signs that is beginning to change.
"Now that gas prices have been at a low level for a sustained level of time, households are starting to feel the uplift of the lower prices," said Steve Barr, U.S. retail and consumer leader for PricewaterhouseCoopers.
"For the first time we are starting to see that effect on holiday spending," he said.
Gasoline prices have recently increased due to supply issues resulting from Hurricane Matthew and the rupture of a fuel pipeline owned in Alabama last month.
But prices remain cheaper than they were a year ago.
Pump prices in Arkansas averaged $2.05 a gallon Monday, down from $2.12 a year ago. Nationwide, gasoline prices averaged $2.26 a gallon, down from $2.32 a year ago, according to AAA.
Consumers won't just be spending more in stores, they will also pay more on travel and entertainment this year.
Consumers expect to spend an average of $1,121 overall this Christmas season, up 10 percent from 2015, according to PricewaterhouseCoopers' 2016 Holiday Outlook survey.
The survey also found that households with incomes less than $50,000 will increase their spending levels more than other consumers.
"The direction here is that there's both an ability and a willingness to spend this holiday season," Barr said.
"Lower gasoline prices and lower energy bills have created positive headwinds for shoppers going into the 2016 holiday season," he said.
Business on 10/11/2016