The National Retail Federation (NRF) is forecasting that retail sales during 2019 will rise between 3.8% and 4.4% to more than $3.8 trillion in spite of perceived threats from an ongoing trade war, the volatile stock market and the aftereffects of the government shutdown.
“We believe the underlying state of the economy is sound,” declares NRF’s president Matthew Shay. “More people are working, they’re making more money, their taxes are lower and their confidence remains high. The biggest priority is to ensure that our economy continues to grow and to avoid self-inflicted wounds. It’s time for artificial problems like trade wars and shutdowns to end, and to focus on prosperity not politics.”
Preliminary estimates show that retail sales during 2018 grew 4.6% over 2017 to $3.68 trillion, exceeding NRF’s forecast of at least 4.5% growth. The number includes online and other non-store sales, which were up 10.4% at $682.8 billion. That met NRF’s forecast of 10-12% online growth, and online is expected to grow in the same 10-12% range again this year.
As usual with the federation’s industry reports, the Feb. 5 report numbers exclude automobile dealers, gasoline stations and restaurants.
Growth of between 3.8% and 4.4% would result in total 2019 retail sales of between $3.82 trillion and $3.84 trillion. Based on growth of 10-12%, online sales would total between $751.1 billion and $764.8 billion, which are included in the total.
The 2018 results are based on U.S. Department of Commerce data up through November. The report only includes NRF estimates for December because the agency was closed during the recent government shutdown and has not yet released December figures. The results are subject to revision once December numbers become available, and government numbers are revised again each spring regardless of the shutdown, the federation notes.
“We are not seeing any deterioration in the financial health of the consumer,” NRF's chief economist Jack Kleinhenz says. “Consumers are in better shape than any time in the last few years. Most important for the year ahead will be the ongoing strength in the job market, which will support the consumer income and spending that are both key drivers of the economy. The bottom line is that the economy is in a good place despite the ups and downs of the stock market and other uncertainties. Growth remains solid.”
NRF expects the overall economy to gain an average of 170,000 jobs per month, down from 220,000 in 2018, and that unemployment – currently at 4% – will drop to 3.5% by the end of the year. Gross domestic product is likely to grow about 2.5% over 2018.
Good News, Bad News
According to Kleinhenz, inflation and interest rates are expected to remain low this year, adding that retail sales also have been helped by recent reductions in gasoline prices.
Retailers so far have been able to largely mitigate the impact of new tariffs on steel, aluminum and goods from China imposed in the past year, he admits. But tariffs could drive up the cost of consumer products and affect business direction and profits this year, particularly if tariffs on $200 billion in Chinese products rise from 10% to 25% as currently scheduled for March 1, Kleinhenz stresses.
It has been difficult to measure the impact of the recently ended government shutdown. Government workers will be paid retroactively but some spending and expenses such as dining out or entertaining have been lost and government contractors will not receive back pay, he adds, noting that key issue is how quickly the Internal Revenue Service will be able to process a potential backlog of tax returns, which would affect first-quarter spending.
In a separate report, NRF said retail industry employment in January was down by 15,100 jobs unadjusted from a year earlier but increased 14,800 jobs seasonally adjusted from December. The retail numbers came as the nation added 304,000 jobs overall compared with December, according to the U.S. Department of Labor (DOL) said.
“January figures are always complicated to understand given weather and holiday hiring along with the Labor Department’s annual benchmarking process of updating seasonal adjustment factors and population numbers,” NRF’s Kleinhenz points out. “Nonetheless, today’s [Feb. 1] numbers reinforce that the economy is in a good place and businesses are seeing demand for goods and services and consequently hiring more workers.”
January’s retail job numbers built on a revised loss of 21,000 jobs in December from November. December was originally reported as a 15,200-job gain over November. The three-month moving average as of January showed an increase of 8,400 jobs.
NRF observes that January saw a surprising month-over-month gain of 17,400 jobs in sporting goods, hobby and book stores, a category that has been volatile with mostly negative job numbers, along with increases of 2,900 jobs at food and beverage stores, 2,600 at furniture stores and 1,500 at electronics and appliance stores. There were losses of 12,100 jobs at general merchandise stores, which includes department stores, and 2,700 at health and personal care product stores.
Economy-wide, average hourly earnings in January were up 3 cents over December to $27.56 and up 85 cents from a year ago, a year-over-year increase of 3.2%. DOL also says unemployment was 4%, up from 3.9% in December.
Kleinhenz asserts that retail job numbers reported by DOL do not provide an accurate picture of the industry because they count only employees who work in stores while excluding retail workers in other parts of the business such as corporate headquarters, distribution centers, call centers and innovation labs.