Will the Grinch Dictate Retail Sales this Holiday Season?

It is the time of the year when retail stores pull out their Christmas goods and decorations in anticipation of the upcoming holiday season. At the same time, trade associations and economists dust off their Grinchmeters to project consumer’s willingness to share in the spirit of giving.

Recently, the National Retail Federation (NRF) released their forecast stating that 2011 holiday sales will post a 2.8% increase over last year and the total will reach $465.8 billion. While the increase is weak compared to last year’s increase of 5.6%, it is comparable to the average for the past 10 years. Nationally, retailers are expected to hire a half million seasonal workers this season.

The following factors may point to a better than average season.
• There have been 14 back-to-back months of increased retail sales and momentum is established.
• More people are working than a year ago.
• There is a lower level of household debt, although a portion of that decline is a result of foreclosures.
• The Grinch may get lost this Christmas season.

On the other hand, the following factors may cause sales to be average or worse.
• Lack of consumer confidence.
• Lack of confidence by business leaders.
• Higher inflation, particularly higher gas and food prices.
• Lack of wage and job growth.
• A return of extreme volatility in the stock market.
• Uncertainty associated with the 2012 elections.
• Consumer shopping patterns have been altered.
o Consumers are spending less time in stores, which reduces impulse sales.
o Increased Internet sales.
o Consumers have been trained by retailers to expect sales or heavy discounting.
o Consumers have learned that lower levels of gift giving are acceptable.
o Some consumers have chosen to give gift cards rather than purchase a gift.
• In an article by the New York Times (A Contradiction in the Cargo), the volume(August imports) at the country’s 5 busiest container ports are flat or below the same period in 2010.
o Los Angeles, down 5.75%
o Long Beach, down 14.2% from August 2010; a decline of 15% is projected for September.
o Savannah, GA, down 4%.
o Oakland, down 0.9%
o New-New Jersey, imports were flat.
Fewer imports may signal that retailers are projecting only modest gains in sales this season.

In short, it will be a challenging season for retailers, but not necessarily a buyer’s season for consumers.

Note: The NRF defines “the holiday season” as November and December. Sales generated during these two months are often a significant portion of the annual total for many businesses. The NRF also states that retail sales include most traditional retail categories – discounters, department stores, grocery stores, and specialty stores. Automotive dealers, gas stations, and restaurants are not included.

©Copyright 2011 by CBER.

Is a Recession on the Horizon?

The Wall Street Journal recently reported that The Conference Board has put the chance of a recession at 45% within the next 12 months. This is higher than other polls, which are more in the neighborhood of 1-in-3. TCB Chief Economist Bart van Ark’s projection is up from 1-in-3 in August and 1-in-6 in July. The WSJ noted, “For the last 23 years, a downturn has followed every time The Conference Board’s estimate topped 40 %.”

This news is significant because for the past year The Conference Board has unfortunately has more accurately projected the performance of the U.S. economy than such groups as Kiplinger’s, Moody’s, and the National Association of Business Economists. In some cases, these groups provided projections that pointed to a recovery.

The Conference Board’s outlook for the remainder of 2011 and 2012 is:

Real GDP
2011 1.6%
2012 1.8%
A slight improvement is on tap for the second half of 2012.

Consumer Spending
2011 2.1%
2012 1.9%
The consumer will not jumpstart the economy

Capital Spending
2011 6.9%
2012 5.5%
The private sector will be less than robust over the next 18 months.

Net Exports (billions)
2011 -$398.3
2012 -$370.6
Slight improvement in the trade deficit.

This is not a pretty picture!

 

©Copyright 2011 by CBER.