As Americans fill their shopping carts with gifts, decorations, and cooking supplies, the National Retail Federation expects to see $960 billion in holiday spending — a record-breaking amount. According to Allison Kaminaga, Ph.D., Mathematics and Economics lecturer and Economics program coordinator, robust holiday spending is an indicator of the economy’s overall health.

“That amount is up about 3 to 4 percent from last year, which is in line with pre-pandemic trends. Of the $960 billion, we're estimating that two-thirds of that spending will be done in person,” says Kaminaga, who teaches “Microeconomic Principles,” “Macroeconomic Principles,” “Economic Development,” and “The Fed Challenge.”

She notes that a significant portion of the country’s spending takes place at the end of the year — with some retailers seeing 40 percent of their yearly sales during that time. While these projected numbers tell their own story of positive trends in the economy, ongoing talks of a 2024 recession have been making headlines for close to a year. In November, the Federal Reserve conducted a survey of professional forecasters who predicted there’d be a 40 percent chance of a recession in the beginning of 2024; in early December, economists predicted that cooling inflation will help the country avoid a recession. On December 13, the Federal Reserve also implied three rate cuts in 2024 -- a move typically made by the Fed to prevent, or offset, an economic slowdown.

Kaminaga breaks down the situation and provides the latest on what people should know:

What is a recession?

Kaminaga explains that recessions occur when there is a decline in economic activity across the country; additionally, that decline must extend longer than a few months. Since the start of the 21st century, America’s experienced three recessions: the first caused by the bursting of the dot.com bubble in 2001, the second by the bursting of the housing bubble in 2008, and the third by the 2020 COVID-19 lockdowns.

“If we were to have a recession, it would definitely be more mild and shallower than in the past,” Kaminaga says, adding that we wouldn’t see anything near the high level of unemployment or severe contraction in GDP from 2020.

Should I be concerned?

While professional forecasters from the Federal Reserve’s survey predict nearly a 50/50 chance of a recession, Goldman Sachs suggests the likelihood is closer to 15 percent which, according to Kaminaga, is the historical average of probability at any random time.

There is currently a possibility for a recession in early 2024, but Kaminaga says economists are more focused on the slow growth that’s anticipated for the economy.

Since inflation has been of significant concern the past several years, the Federal Reserve increased interest rates to alleviate the issue. Kaminaga notes that this action increases the risk of a recession since things like housing and cars become more expensive.

“We’re also seeing really high credit card spending — especially with the holidays,” Kaminaga says. “With high interest rates, credit card bills are larger than they used to be. Servicing credit card debt is problematic in this higher interest rate environment.”

She adds that student loan payments, which had been on pause since the pandemic, resumed in October and will likely cause households’ spending to slow now and into the future.

How can I stay prepared?

Since household spending makes up 70 percent of the United States’ GDP, consumer confidence is a leading indicator on where consumption will go in the future. Currently, economists are seeing that while consumer confidence has recently picked up, it’s low by historical standards. If people are worried about how they'd fare in a recession, Kaminaga says it's a good idea to save.

“During a recession we see the unemployment rate creep up and, even for people who have jobs that don't experience unemployment, it's possible they may see their hours go down or their income go down. So, having a nest egg to fall back on could be beneficial,” says Kaminaga.

As the U.S. anticipates record holiday spending, consumers may consider saving instead of splurging on that one last stocking stuffer.