Business news: NRF calls for 2.3% gain in holiday sales

Recent projections from the National Retail Federation (NFR) indicate that 2010 holiday retail sales will hit $447.1 billion for a 2.3% gain over 2009.

NRF officials said that while this increase is slightly lower than its 10-year average holiday sales increase of 2.5%, it still represents a significant improvement from 2009’s 0.4% increase and 2008’s 3.9% decline.

In recent years, retailers have had to deal with excess merchandise and inventory control during the holiday season to limit their exposure to excess merchandise and unplanned markdowns, according to the NRF. And, like in recent years, the NRF explained that retailers are expected to focus on supply chain efficiencies and inventory control to prepare for these possibilities again.

“We have heard the recession is over officially, but many consumers feel we are still in [one],” said Jack Kleinhenz, Ph.D., NRF chief economist, on a media and analyst conference call. “Unemployment remains high and second quarter real GDP is 1.7%. We are moving at a very slow, substantially modest pace. It has been disappointing to consumers and policy makers, with a lack of job growth being the biggest shortcoming.”

Looking at previous recessions and recoveries, the conventional wisdom indicates there would be a much more rapid recovery in terms of output and employment at this point in the recovery—which has not happened as much as expected—said Kleinhenz.

The remainder of 2010 appears to be what the NRF economist defined as a sluggish period, with a projected 2.4% GDP growth in the fourth quarter year-over-year and 2.6% for all of 2010 and 2011.

“I am cautiously optimistic about the holiday season…things look better than they did last year,” Kleinhenz said. “During past recessions consumers used both cash and credit, which helped to supplement personal income. But as we think about what is happening, we find that consumer credit as a percentage of disposal income has been its lowest in a decade. We are seeing changes in the use of credit and the allocation of credit.”

In August, data released by the NRF and the United States Department of Commerce showed 3.6% and 3.0% gains, respectively. While these numbers are both ahead of the NRF’s holiday forecast, retailers are still faced with the challenge to convince consumers that the recession is over and to buy accordingly.

But given the current economic outlook that is easier said than done, what with unemployment, low consumer confidence and higher personal savings rates, among other things having an ongoing negative effect on the economy.

It has also been apparent in the freight transportation sector, as some volumes for different modes have leveled off to a certain extent compared to a promising first half of the year, when there was a heavy inventory re-build occurring. But even with some volumes weakening, they are still above dismal 2009 levels. One driver for this is due to manufacturers and retailers slowly building up inventories after keeping them deliberately low for months to better match up with low demand levels during the recession.

The relative flattening of retail sales in July and August has brought back a type of freight malaise that had been apparent for several quarters prior to the optimism surrounding the first half of the year, said Charles “Chuck” Clowdis, managing director, North America Global Commerce & Transport Advisory Services, at IHS Global Insight . Clowdis added that the best season of the year may have already occurred in 2010, unlike in typical good years when the heaviest freight volumes occur in October. This sentiment is similar to the recent Port Tracker report from the NRF and Hackett Associates, which noted that July may prove to be the busiest month of the year.