Holiday sales will rise 3.9 percent this year, the National Retail Federation says.

Sales will grow to $602.1 billion during the busiest time of year for merchants, rising over last year’s 3.5 percent holiday sales growth, the trade group reported in its annual prediction.

The forecast is higher than the 10-year average holiday sales growth of 3.3 percent.

“Our forecast is a realistic look at where we are right now in this economy — balancing continued uncertainty in Washington and an economy that has been teetering on incremental growth for years,” said NRF President and CEO Matthew Shay. “Overall, retailers are optimistic for the 2013 holiday season, hoping political debates over government spending and the debt ceiling do not erase any economic progress we’ve already made.”

On the recent government shutdown and NRF’s holiday outlook, “Our forecast is also somewhat hinging on Congress and the Administration’s actions over the next 45 days; without action, we face the potential of losing the faith Americans have in their leaders, and the pursuant decrease in consumer confidence,” Shay said.

Economic variables including positive growth in the U.S. housing market and increased consumer appetite to buy larger-ticket items give retailers reason to be cautiously optimistic for solid holiday season gains.

But, much remains up in the air, including fiscal concerns around the debt ceiling and government funding, income growth and even policies and actions surrounding foreign affairs, all of which could impact holiday sales, according to the NRF.

The holiday season can account for anywhere from 20-40 percent of a retailer’s annual sales, and accounts for approximately 20 percent of total industry annual sales, the trade group reported.

“The economy continues to expand, albeit at an unspectacular pace,” said NRF Chief Economist Jack Kleinhenz. “In order for consumers to turn out this holiday season, we need to see steady improvements in income and job growth, as well as an agreement from Washington that puts the economic recovery first. Our forecast leaves room for improvement, while at the same time provides a very realistic look at the state of the American consumer and their confidence in our economy.”

NRF’s holiday sales forecast is based on several indicators including consumer confidence, consumer credit, disposable personal income and previous monthly retail sales releases. It includes the non-store category (direct-to-consumer, kiosks and online sales.)