After months of dour predictions, sub-par economic forecasts, and stubbornly high unemployment, the retail industry is positively quaking going into holiday – but industry experts are predicting gains of about 3% at retail, which is cause for celebration in today’s tight economy. Given that consumer activity accounts for about 70% of U.S. economic activity, every percentage point counts.

The National Retail Federation projected a retail revenue increase of 2.8% over 2011, in what is traditionally the biggest retail push of the year. It is no match for the 5% gains the industry became accustomed to before the recession, but with unemployment still high and consumer confidence still low, it is a solid gain.

According to the Cotton Incorporated Lifestyle Monitor™ survey, consumers plan to spend, on average, about $498 on holiday gifts this year, and 64% say they will spend the same amount of money on holiday gifts this year compared to last year.

A new and powerful surge at retail may well come from the power of smartphones and social media.

“Social media really has the ability to influence consumers – whether they are comparison shopping or locating stores, for example,” says Kim Kitchings, Senior Director, Corporate Strategy and Program Metrics, Cotton Incorporated. “While we are seeing an increase in consumers who actually make purchases on their mobile devices, by and large this is still seen as an informational tool – but one that can really help consumers looking to stretch their budgets.”

Monitor data support this; more than eight out of ten (84%) consumers plan to use the Internet to shop for holiday gifts this year. Most (80%) of internet shoppers will use a traditional computer, but 11% will use a smartphone. That percentage is up from just 2% of consumers who planned to use a smartphone last year.

What consumers plan to give, though, changes little from year to year.

As was the case last year, gift cards will top the list; among those planning to buy holiday gifts, 68% will purchase gift cards, compared to 70% last year, while 49% will purchase clothes, down slightly from 52% last year. Forty-one percent of consumers said they will purchase toys, also down slightly from 44% last year.

And given that shoppers are watching their budgets, it should come as no surprise that chain stores and mass merchants are the preferred channel for apparel holiday shopping this year. Sixty percent of consumers plan to shop at both, compared to the 38% who plan to shop online and the 37% who plan to shop at department stores.

“Most consumers are creatures of habit,” Kitchings says. “They buy the same gifts every year in the same places.” Consumers might not change where they shop, Kitchings says, which is why social media has the potential to revolutionize how they shop.

U.S. brands and retailers have been on the frontlines of the Internet and social media, whether through mobile applications that give special discounts or locate stores, virtual stores in Second Life, or the ability to shop through YouTube. Retailers’ experiments on social networking sites like Facebook and Twitter are also a boon to shoppers, who now have a wealth of information at their fingertips and an unparalleled ability to comparison shop for the best deal.

“Consumers had to drastically readjust in 2009, at the height of the recession, and they have to do so again, thanks to high or rising prices in apparel and other categories like food and gasoline,” Kitchings says. “As a result, they’re shopping smarter, using the Internet to comparison shop or find better deals, and also keeping an eye out for that extra something, like free wrapping or free shipping.”

Practical items are also topping the apparel gift list this year; 44% of consumers say they will give t-shirts, and 34% saying they will give denim jeans.

“Interestingly, we’re seeing consumers more likely to purchase denim at this time of year,” Kitchings says. “With increasing prices of clothing and still limited budgets, consumers have put off buying some of the core items they normally would like – a second or third pair of jeans during back-to-school, for example – which may be why we see a larger percentage of consumers planning to give denim as a gift this year. This is very smart behavior on the consumers’ part.”

That practicality extends to the retailers too, who are doing all they can do to encourage consumers to shop. Walmart, Sears, and Kmart all have in-store layaway options this year, but what may move the needle for some consumers is a new company called eLayaway, which offers online layaway through a variety of affiliates, including Best Buy and Apple Store.

“The extension of layaway will really help those consumers,” Kitchings says. “In this economy, every bit counts.”

Monitor data support this: budget remains a top concern as more than eight out of 10 consumers (81%) are very or somewhat concerned about a reduction in their annual household income. Those earning less than $75,000 per year are, unsurprisingly, more likely than those earning more to be very or somewhat concerned about a reduction in income (84% vs. 73%).

With tight budgets and an eye on the bottom line, though, consumers may be all the more drawn to the in-store experience. “In difficult times, people seek a connection,” Kitchings says. “This may be where you see consumers using their smartphones, but they’re still in the store, because that’s where the experience is.”

Ultimately, Kitchings says Holiday 2011 may boil down to a simple question for retailers: “Are you in the right space to reach your consumers?”

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