Know what really bugs me? Christmas starts every year in September. While I’m still trying to hang onto the last vestiges of summer, retail stores are putting up their holiday decorations.

I don’t surrender easily to the holidays. Even after the first snowfall, I still wear summer shorts and sockless boat shoes outdoors, with a winter parka (it’s a sartorial tradition among we Rhode Islanders). But there’s one force that can’t be resisted: the tremendous importance of holiday spending to the nation’s economy and by extension the stock market.

About three-fourths of U.S. gross domestic product is made up of consumer spending, and in turn about three-fourths of consumer spending occurs during the holidays. Autumn is around the corner, and with the turning of seasons, we’re seeing in retail’s recent resilience the impetus for maybe, just maybe, a positive stock market finish for 2022.

According to Deloitte’s annual holiday retail forecast (released September 13), holiday retail sales are likely to increase between 4% and 6% on an annual basis in 2022, from November to January. That’s a slowdown from last year, when overall holiday sales increased 15.1% during the same time frame. But it’s not a lump of coal, either.

More importantly, Deloitte forecasts that e-commerce sales will grow by 12.8% to 14.3%, year-over-year, during the 2022-2023 holiday season.

Can we expect a “Santa Claus rally” in the final weeks of 2022? I’ll revisit that question, as we get closer to another American tradition: Black Friday. But for now, the early portents on consumer spending have been better than feared.

The U.S. Census Bureau reported Thursday that U.S. retail sales rebounded in August, as consumers increased purchases of motor vehicles and dined out more often.

Advance estimates of U.S. retail and food services sales for August 2022 were $683.3 billion, an increase of 0.3% from the previous month and better than the consensus estimate of a 0.1% drop (see chart).

Retail sales in August climbed 9.1% on an annual basis. Gas station sales jumped 29.3% year-over-year, while food services and drinking places rose 11.2%.

But there’s a major caveat: Higher inflation drove the top line sales figure, which means when adjusted for inflation, sales were negative.

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In a separate report Thursday from the Labor Department, initial jobless claims for the week ended September 10 totaled 213,000, a decrease of 5,000 from the previous week and exceeding the 225,000 estimate.

In the wake of these retail and jobs reports, the main U.S. equity benchmarks closed lower on Thursday as follows: the Dow Jones Industrial Average -0.56%; the S&P 500 -1.13%; the tech-heavy NASDAQ -1.43%; and the small-cap Russell 2000 -0.72%. Trading was volatile.

Consumers, and therefore the economy, might be in good enough shape to sustain healthy holiday shopping this season. Freer spending shoppers would do much to buoy the overall stock market in the coming months.

Problem is, this dynamic is a mixed blessing, because it prompts investors to think that the Federal Reserve might go too far, too fast to curtail growth in its fight against inflation. The S&P 500 is down more than 4% week to date.

We got mixed news this week on inflation, with data for the month of August. The consumer price index (CPI) rose more than expected, but the producer price index (PPI) fell more than expected. Wholesale prices are a leading indicator, so the moderating of the PPI could signal that inflation has peaked.

Much depends on the Fed, which meets next week. Wall Street is betting on an interest rate increase of 75 basis points (bps). If the Fed surprises investors with a hike of 100 bps, stocks could take a tumble.

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John Persinos is the editorial director of Investing Daily.

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