Many say the only constant in life is change, and nothing could be truer for the retail industry. When it comes to retail sales, which depend on a multitude of factors but mostly the confidence and ability of consumers to spend — both on necessities and discretionary purchases — retailers know change is guaranteed.
Given that we are now at the mid-point of the year, it’s important to reassess where the industry stands as it relates to overall expected sales growth. There are plenty of factors to consider, and given the fluctuations in economic activity through the first half of the year, we believe it is necessary to adjust for the significant variances seen thus far in sales and consumer spending.
NRF in February forecast that retail sales would increase 4.1 percent through the year, including online and other non-store sales. Unfortunately, that outlook has not played out precisely as anticipated. A confluence of events — including treacherous weather through most of the winter, West Coast port disruptions, a stronger U.S. dollar, weak foreign growth and declines in energy sector investments — all significantly impacted retail sales so far this year, and have changed how future sales will shape up for the rest of the year. Additionally, household spending patterns have also recently shifted purchases toward services more than purchases of goods — another contributing factor to lackluster sales results.
As such, NRF is now forecasting that retail sales — excluding automobiles, gasoline stations and restaurants — will increase only 3.5 percent for the year. Online/non-store sales, which are included in the overall figure, are expected to grow between 6 and 8 percent the remainder of the year rather than the 7-10 percent initially forecast for the full year. And we expect gross domestic product to increase between 2.7 and 3 percent during the second half.
While many of the aforementioned factors will not likely be repeated in the coming months, there are some that could linger and somewhat cloud the economic outlook. The impact of the strong U.S. dollar on trade and lower oil prices on energy investments remain as headwinds and could further temper the pace of economic growth.
However, recent economic indicators do suggest that the economy is turning a corner, fortunately putting to rest any concerns that the expansion has stalled. My second-quarter estimates for economic growth are now above 2 percent, which suggests that first-quarter weakness was more of an aberration than a continuing trend. And the job market continues to make strides with nearly 3 million more jobs than a year ago.
We think we’ll see a better second half of 2015. Real consumer demand has actually been stronger than what nominal retail sales have indicated, and deflationary pricing is helping keep receipts low for U.S. households. Going forward, retail sales should register further strength, and resilient consumers should never be counted out.
As for the economy, we believe we’ll see continued growth but recognize that there are critical potential “tipping points,” including foreign markets and wage growth.