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S&P Global economists: Economy is primed for increased holiday spending

Increases in employment and household wealth are expected to boost holiday sales more than 4% over last year and propel growth in consumer spending by 2.7%, economists at S&P Global Ratings said in a research note released to clients Nov. 30.

"We think consumer spending will see support from employment gains, as well as rising real disposable incomes and household wealth," the economists said. "Black Friday estimates suggests that consumers, if not out in full-force at the malls, were clicking away at their keyboards to buy some holiday cheer."

The U.S. economy added 261,000 new jobs in October, following a less robust 18,000 new jobs in September. With high amounts of spending on Black Friday, at least online, the economists said they expect a "festive" November jobs report.

"The wide swings in the labor market through the autumn are likely distortions caused by the back-to-back-to-back hurricanes," the economists said. "And despite the volatility, the underlying trend remains rosy."

Real disposable income experienced "sluggish growth" at 1.2% year over year, the economists said. However, other measures of personal wealth, including housing, are increasing. Housing starts surged 13.7% in October from the previous month. The S&P Global economists said they expect residential investment to improve to a 3.7% annual rate in 2018 after a "lackluster" 1.1% in 2017.

"We believe that low mortgage rates and a solid labor market will continue to lay the groundwork for a sustained housing demand," the economists said. "Both demographics and healthy economy are supportive of demand."

The economists also expect GDP to grow 2.2% in 2017 and 2.6% in 2018, with the 2018 estimate helped by potential tax cuts being pushed through Congress by Republicans. The Federal Reserve, on the other hand, "looks set to continue its measured approach toward normalizing monetary policy," according to the economists.

"We have been skeptical that the recent spate of low inflation was 'transitory,' despite the Fed's earlier claims," the economists said. "If inflation continues to remain low, the Fed may need to reconsider its interest rate policy strategy, with an even slower approach to monetary policy normalization than they currently plan."

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.