NRF expects lower retail sales in 2013

Given the fact that retail sales and consumer spending represent roughly two-thirds of total economic activity in the United States, it is fairly east to surmise that the current numbers are not where they need to be to lift economic growth from the uneven economic pendulum which has been shifting up and down for a number of years now.

That was made clear with today’s announcement by the National Retail Federation (NRF) in making its 2013 economic forecast.

According to the NRF, retail industry sales—excluding automobiles, gas stations, and restaurants—will increase 3.4 percent in 2013, down from its preliminary figure of 4.2 percent growth in 2012.

NRF officials explained that the downward forecast stems from the holiday shopping season occurring simultaneously with the very public wrangling between the White House and Congress over the Fiscal Cliff negotiations, which reached an accord in early January but also resulted in the majority of U.S. households seeing an increase in payroll taxes and a decrease in take home pay.

What’s more, the NRF pointed out that the Fiscal Cliff negotiations led to a shift in consumers deciding not to spend as much on holiday shopping. Earlier this month, the NRF reported that for the holiday shopping season, which NRF defines as the months of November and December, retail sales were up 3.0 percent, which fell below its projected forecast of 4.1 percent growth to $579.8 billion.

While total 2013 retail sales are expected to rise 3.4 percent, NRF’s digital division, Shop.org, is calling for 2013 online, or e-commerce, sales to grow between 9-to-12 percent in 2013, ahead of the holiday season’s 11.1 percent growth.

“As we saw during the holidays, this debate about the health of our economy and the conversations policy makers are having about fiscal policy is having a real impact on household budgets and consumer spending,” said NRF President and CEO Matthew Shay on a conference call today. “And while it is not exactly known what the impact of the payroll tax hikes will be on retail spending, we can safely predict that consumers will be shopping for price more often, and there will be some trading down and reshuffling within various retail segments because of the changes people are seeing in their paychecks.”

If there is sustained positive job growth in 2013, though, it could help to offset the impact on the payroll tax hike and lead to stronger economic growth and improved consumer confidence, Shay noted.

Current month-over-month job increases between 150,000-175,000, said Shay, are not enough to sufficiently erode the high unemployment numbers in recent years.

But true job growth, he said, will have to wait, until there is some real leadership by Congress and the White House by working together to get it done.

“What we think they should be pursuing is policy that leads to growth,” he explained. “And what we are talking about is enlarging the size of the economic pie, which will lead to a continued debate about dividing up the pie in different ways. We need to pursue real and substantive tax reform across board for corporations and individuals, and we need to talk about lowering rates, broadening the base and closing loopholes. All of those things will generate interest in investments and drive growth. Comprehensive immigration legislation would also be a good thing as would energy exploration. We also need to show the world we can take care of our fiscal responsibilities to ensure we are on a long-term growth path.”

NRF Chief Economist Jack Kleinhenz said on the call that a pattern of sub-par growth for the economy is likely in 2013, which could be in line with the Department of Commerce’s advance notice GDP number, which is due out soon.

And even though consumers have typically been the driver of economic growth, he said that consumer spending growth will be modest this year, due to things like ongoing pressures from lower income and higher taxes, which subsequently have a hampering effect on spending.

“The 2 percent payroll tax and the additional provision for the Affordable Health Care Act will account for much of the reduction in consumer spending for the first quarter,” said Kleinhenz. “Over the last two years, growth has averaged about 2.25 percent since the economic recovery began, and we have gone through a number of reallocations in the economy to the extent that households have reduced their debt burdens to very low levels, housing is finally showing some signs of improvement, and energy prices are down. These factors are part and parcel of the forecast of the ability to spend by consumers and also their willingness. Unfortunately we are still at a slow growth rate with some uncertainties.”

Retailers have been creative in the past in addressing uncertainties in the market, said Shay, while delivering customer value, which is reflected in their supply chain management practices by getting better control over their inventories and getting the right mix of products and goods delivered to best meet consumers’ needs.