It’s going to be a bumpy ride.
Due to a “confluence of events” and “unexpected slow growth” in the first half of the year, the National Retail Federation lowered its sales forecast for 2015. The NRF now sees retail sales rising 3.5 percent, which compares to a prior estimate of 4.1 percent. Despite the downward revision, the NRF is expecting sales to steadily increase in coming months.
The lowered forecast comes on the heels of a weaker back-to-school sales outlook.
NRF chief economist Jack Kleinhenz said Wednesday that several events, “including treacherous weather throughout the United States through most of the winter, issues at the West Coast ports, a stronger U.S. dollar, weak foreign growth and declines in energy sector investments all significantly and negatively impacted retail sales so far this year, and thus have changed how future sales will shape up for the rest of 2015.”
“Additionally, household spending patterns appear to have shifted purchases toward services and away from goods, though this may be transitory,” Kleinhenz said, adding that “a deflationary retail environment has been especially challenging for retailers’ bottom lines.”
NRF president and chief executive officer Matthew Shay pointed a finger at the nation’s capitol for the country’s economic slump. “For years, consumer spending has been hampered by lackluster growth in our economy,” Shay said. “Much of that blame can be shifted to Washington where too much time has been spent crafting rules and regulations that almost guarantee negative consequences for consumers and American businesses alike.”
Shay added that until the “government and our elected leaders get serious about enacting policies that lift consumer confidence, create economic growth and spur investment, we will continue this trend of solid, but not exceptional, performance in the economy.”
Regarding an uptick in spending, Shay said the second half will “benefit from recent improvements in the housing and labor markets along with lower energy costs,” which will energize consumer confidence enough to “bolster retail purchases for the year.”
The National Association of Realtors on Wednesday reinforced Shay’s view on housing, saying existing home sales increased 3.2 percent while the number of single-family houses within that segment rose 2.8 percent — the highest level since 2007. At first blush, this is good economic news for the retail industry because it reflects strength in the market.
However, the NAR said the inventory of existing homes declined, which might signal some weakness.
“Why are inventories so tight if prices keep rising?” asked IHS Global Insight economists Stephanie Karol and Kristin Reynolds in a follow-up research note. “Many owners may be unable to buy another home after selling their current one, either because they are underwater on their current property, or because their credit scores are low enough that they may not be able to qualify for a mortgage on a new place.”
Subsequently, recent home sellers might be forced to rent — a market that has seen some steep increases in recent years. Median rental costs are up about 5 percent over the past five years, which could strain household budgets and curb retail spending.
Still, shoppers are continuing to spend money.
The Federal Reserve Bank of St. Louis’s Beige Book update said that “consumer spending increased across all districts” that it tracks. “Three districts said low energy prices helped boost spending, while two border districts noted weakness tied to the rising dollar along border areas,” the Fed said in the report.
What’s noteworthy is that consumers are not spending on apparel and related goods — to Kleinhenz’s point regarding spending on experiences.
“Consumers today are seeking the ‘it’ activity over the ‘it’ item,” said analysts at Telsey Advisory Group in their research report Wednesday. “Experiences are trumping product purchases, since they build lasting memories and relationships. Consumers are spending on services, such as grooming, personal trainers, prepared meals, along with travel, which seems to be a bigger part of consumers’ budgets.”