The National Retail Federation increased its retail sales forecast for 2018 to a minimum gain of 4.5 percent over 2017, compared to the 3.8 to 4.4 percent forecast earlier this year.
In raising its forecast, the NRF cited tax reform, wage gains and other positive economic inputs but warned that tariffs threaten to dampen consumer confidence. Retailers have already wrapped up their holiday buys, goods are in warehouses, ports or in transit, so prices this year should be unaffected. Imports have been at record levels this summer, with retailers hustling to bring merchandise into the country before tariffs take effect, according to NRF’s Global Port Tracker report.
The NRF sales forecast on 2018 sales exclude automobiles, gasoline stations and restaurants. The trade organization’s outlook is in sync with other retail forecasters. Craig Johnson, president of Customer Growth Partners, has the season pegged to grow more than 5 percent year-over-year — with online sales rising by more than 10 percent.
“Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy,” said NRF president and chief executive officer Matt Shay. “Tax reform and economic stimulus have created jobs and put more money in consumers’ pockets, and retailers are seeing it in their bottom line. We knew this would be a good year, but the first half turned out to be even better than expected.
“A tremendous amount of uncertainty about the second half remains. It could be a banner year for the industry, or we could keep chugging along at the current rate.”
According to the NRF, retail sales in the first half of 2018 grew 4.8 percent year-over-year and have been up 4.4 percent year-over-year in the most recent three-month moving average. NRF now expects gross domestic product for the year to grow at the higher end of the 2.5 to 3 percent range it forecast earlier.
Also, back-to-school sales have been good, fueling optimism for the year overall. “After a slow start due to the long winter, retail has inflected sharply up since late April and has hardly looked back,” Johnson said recently. “This is the most momentum we’ve seen in seven years and spans almost all retail sectors.”
Deloitte recently reported that household spending on clothing, supplies, computers and electronics for children in grades kindergarten to 12 is expected to reach nearly $28 billion this year, up from $27 billion in 2017. Consumers are expected to spend $286 for b-t-s apparel, on average, versus $284 last year, and $112 on b-t-s supplies this year, versus $104 last year, according to Deloitte.
“We don’t want to see these economic gains derailed by protectionist trade policy,” Shay said. “With retailers ramping up imports and stocking their warehouses before most of the proposed tariffs will take effect, an immediate impact on prices on consumer goods is unlikely, but that won’t last for long. And just the mere talk of tariffs negatively impacts consumer and business confidence, leading to a decline in spending. It’s time to replace tariffs and talk of trade wars with diplomacy and policies that strengthen recent gains, not kill them.”
Tariffs of 25 percent on $34 billion worth of Chinese goods took effect in July and are scheduled to take effect this month on another $16 billion, but both lists include a relatively low number of consumer products, the NRF said.
Another round of tariffs on $200 billion in goods from China that would include a broader array of consumer items is currently under consideration and is expected to be finalized in September.
Another concern revolves around the nation’s tight labor market. Many retailers are likely to find themselves short on seasonal staffing for the holiday stretch, potentially impacting service levels. With consumers buying more and more online, retailers must provide higher levels of service whether that means having associates to support order fulfillment, or buy online, pick up in store operations, or restock the higher level of returns that come with online shopping.
“There are many factors that can impact our forecast, but our overall outlook is optimistic,” NRF chief economist Jack Kleinhenz said. “Spending was weaker than expected at the beginning of the first quarter but has grown more rapidly since then and we continue to anticipate strong sales during the second half of 2018.”
“Despite this upgrade in our forecast, uncertainty surrounding the trade war and higher-than-expected inflation due in part to increased oil prices could make consumers cautious during the fall season,” Kleinhenz said.
In addition to expectations for this year’s spending, Kleinhenz said the revised forecast takes into account government revisions to retail sales, personal income and consumption numbers from 2016 and 2017 that affect year-to-year comparisons.
NRF is continuing to watch economic developments closely and will evaluate any changes to its forecast as necessary. If needed, the next update to the forecast will come as part of NRF’s annual holiday forecast in October.
Kleinhenz said total retail sales have grown year-over-year every month since November 2009, and retail sales as calculated by NRF have increased year-over-year in all but three months since the beginning of 2010.