Live from NRF: Sales Slowdown Ahead

New York — Retail sales are expected to rise 3.5% in 2008, the lowest increase in six years, according to Rosalind Wells, chief economist for the National Retail Federation. During her remarks at the trade organization’s “Big Show” here on Monday, Wells avoided calling it a recession, but termed the retail sales forecast as a “slowdown.”

Wells pointed to a sluggish housing market, a slow job market, and high energy and food costs as the primary factors affecting the modest forecast, which includes a 3.2% rise in first-half sales and 3.8% in the second half. “All these pressures give consumers anxiety,” she said. “Consumers are becoming more cautious about their spending.

Consumer spending will determine economic growth, Wells said. “Retailers will face a challenging sales environment in 2008. Even areas of past high growth rates like luxury goods and online shopping will feel the pinch.”

Retail sales, as forecast by the NRF, do not include automobiles, gas stations, restaurants, or online sales. Wells expects consumer spending to fall to 2.0% from 2.8% last year. Wells also noted that year-over-year holiday sales were expected to increase 4.0%, as official numbers won’t be released by the U.S. Department of Commerce until Tuesday. That figure would mark the lowest increase in five years.

Foremost among the best sellers during the holiday season were consumer electronics items, such as iPods, flat-screen televisions, video game systems, digital cameras, and picture frames. According to NRF projections, during the holiday season, gift-card sales rose 6.0%, to $26.3 billion, up from $24.8 billion last year. Internet sales soared 19%, to $28 billion from $21.7 billion, as projected by independent research firm ComScore. November sales rose 5.1%, which was boosted by the early date (Nov. 22) for Thanksgiving.

But the employments and housing figures are alarming, Wells said. Only 18,000 new jobs were created in December – the lowest increase in four years. “The employment picture will impact the magnitude of income gains that consumers can look forward to,” she said.

By the end of the month, Wells predicted a reduction of one half percent (0.005%) in the federal interest rate. The economy will gradually improve, she said, as “we feel the effects of the lower interest rates.” As for the slumping housing market, Wells said it “shows little sign of bottoming out anytime soon.”

The National Association of Realtors (NAR) expects new-home sales, which dropped nearly 17% in 2006, to fall 25.0% in 2007. For 2008, the NAR calls for a 13% decline in new home sales. What’s more, the home furnishings market will bear the brunt of the slide. “Unfortunately, that’s going to be the hardest hit area,” Wells said.

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