U.S. holiday retail sales are expected to surpass $1 trillion for the first time, with consumers continuing to spend on family and friends despite persistent inflation and higher fuel prices, according to a forecast released Thursday by the National Retail Federation (NRF).

The trade group projects holiday sales will increase 4.2% year over year to more than $1 trillion, up from a 3.1% increase to $972 billion last year. The forecast suggests consumer spending will remain resilient even as households face pressure from elevated costs.

Higher gasoline and diesel prices could weigh on discretionary purchases, particularly for lower-income households with less flexibility in their budgets. Rising diesel costs also increase shipping expenses for retailers, potentially forcing businesses to absorb some additional costs rather than pass them entirely on to consumers.

NRF Chief Economist Mark Mathews described the labor market as “resilient” and said households are expected to maintain their focus on holiday spending.

“We do expect households to continue to prioritize spending on families, friends and loved ones,” Mathews told reporters. “We’ve seen that throughout the course of the year.”

Although consumer confidence readings have remained weak, Mathews said those measures have not consistently predicted actual retail sales.

Retailers are expected to hire between 325,000 and 375,000 seasonal workers for the holiday period. That would be broadly comparable to last year’s 356,000 hires, but below the seasonal hiring levels seen further in the past.

Mathews also said retailers may struggle to pass along the full increase in transportation costs because of competition and consumers’ sensitivity to prices.

“I think it’s really hard for any retailer to go out there and to have higher prices than anybody else,” he said. “So as we saw with tariffs, this is an industry that survives on providing lower prices to consumers and potentially eating some of those costs.”

The NRF’s forecast covers retail sales from November 1 through December 31. It excludes automobile dealers, gasoline stations, and restaurants, focusing on other retail categories during the key holiday shopping season.