NEW YORK — The consumer has been resilient but might be ready to retrench.
With the housing market cooling off and interest rates and energy costs rising, look for retail sales to slow down in 2006 to a 4.7 percent gain from last year’s 6.1 percent, according to the National Retail Federation. The conservative forecast for total retail sales gains came at the NRF’s Annual Convention & EXPO at the Jacob K. Javits Convention Center here Monday.
However, NRF’s chief economist Rosalind Wells put a positive perspective on the consumer downtrend, saying, “It’s not a bad outlook at all. There is nothing dire and not a recession.” With the housing market beginning to slow, “consumers will be challenged to find new sources of spending power.”
According to the NRF’s outlook report, also issued Monday, housing prices “appear to be topping out in some markets, or at least not rising, and refinancings are trending downward.” In addition, retailers will also be up against tough comparisons, and windfalls from equity cashouts are diminishing.
Wells projected sales gains of 5 percent in the first and second quarters, 4.7 percent in the third quarter and 4 percent in the fourth quarter. Real spending she placed at 2.8 percent, versus 3.7 percent in 2005.
Discussing sales by category, Wells predicted that electronics should sustain strong demand, with exciting offerings and attractive pricing. Retailers selling clothing and accessories, food and beverages, and health and personal care should see steady sales gains in the 4 to 5 percent range, while high-end retailers will outperform the average, though Wells didn’t offer a projection for the luxury sector.
“Consumers did their part to prop up the economy. God bless them,” Tracy Mullin, NRF’s president and chief executive, said in her remarks on 2005 to the convention. But in 2006, home furnishings and home improvement chains might find themselves with new challenges and pressures, and retailers generally will have increased pressure from unions seeking to organize workers, skyrocketing health cares costs, keeping prices low, and combating Congressional efforts to raise import taxes. She also stressed shrinkage, which accounted for $33 billion in lost revenues last year, as a threat to retailer’s financial well-being.
Retailers are also concerned about Federal Reserve policy. “The Federal Reserve will play a major role in the consumer’s ability to bounce back in 2006,” the NRF said in a statement. “As Ben Bernanke takes over [from Alan Greenspan on Jan. 31] the NRF expects the Fed policy of vigilance toward inflation to continue. In the near-term, underlying inflationary pressures appear to be under control. Productivity is still quite high and, as a result, unit labor costs are low. These trends should give the Fed some peace of mind.”
Last Friday, the NRF said December retail sales rose 5.7 percent, and November and December combined was 6.4 percent. Wells credited the gains to gift cards and a last-minute surge in spending. Electronics and appliances were up 7 percent in December, building material and garden supply stores rose 8.2 percent, specialty apparel and accessory stores were up 7.6 percent; furniture stores were up 5.6 percent, health and personal care stores rose 6.8 percent, but department stores dropped 3 percent. Consumer spending represents more than two thirds of the GDP.