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Tariffs Threaten Ongoing Retail Sales Boom

Both online retail and bricks-and mortar sales projections are revised upwards.

The National Retail Federation has raised its sales forecast for 2018 upward from its predictions made earlier this year, but warns that the Trump Administration’s widening imposition of tariffs threatens consumer confidence.

The federation said it now anticipates retail sales in 2018 will grow at a minimum of 4.5% over 2017 instead of the 3.8% to 4.4% range forecast it had originally predicted. Retail sales in the first half of 2018 rose 4.8% year-over-year and have been up 4.4% year-over-year in the most recent three-month moving average.

NRF now expects GDP to grow in 2018 at the higher end of the 2.5 to 3% range it had forecast earlier. The revised forecast also reportedly takes into account government revisions to retail sales, personal income and consumption numbers from 2016 and 2017 that impact year-to-year comparisons.

It is important to keep in mind that all of the sales numbers that NRF posts in its retail industry intentionally exclude automobile, gasoline stations and restaurant sales in their totals. For example, the Census Bureau said overall July sales—including automobiles, gasoline and restaurants—were up 0.5% seasonally adjusted from June and up 6.4% year-over-year.

By comparison, NRF’s report that excludes car, gasoline and restaurant sales found that July retail sales were up 0.4% seasonally adjusted from June and increased 4.9% unadjusted year-over-year, which still indicates a solid kickoff for the third quarter.

The federation’s figures do include online and other non-store sales (such as from catalogs), which were up 11.3% year-over-year and up 0.8% month-over-month, seasonally adjusted. Their three-month moving average also was up 5% over the same period last year.

NRF also pointed out government reports show retail industry employment in July increased by 66,000 jobs unadjusted over the same time last year. July saw monthly gains in general merchandise stores, which were up by 14,000 jobs; clothing and accessories, up 10,000; and food and beverage stores, up 8,000 jobs. Offsetting these gains, employment decreased by 32,000 jobs in sporting, hobby, book and and music stores.

Those numbers might actually be better than they seem, according to Jack Kleinhenz, NRF’s chief economist, who pointed out that the July numbers posted by the Labor Department for retail 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.

Healthy Foundation, Uncertain Future

Overall rise in employment is a healthy sign for retailers, says NRF president Matthew Shay. “Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy. Tax reform and economic stimulus have created jobs and put more money in consumers’ pockets, and retailers are seeing it in their bottom line.”

The administration’s aggressive tariff policy could undermine this progress, Kleinhenz warns. “Despite this upgrade in our forecast, uncertainty surrounding the trade war and higher-than-expected inflation due in part to increased oil prices could make consumers cautious during the fall season.”

Tariffs of 25% on $34 billion worth of Chinese goods took effect in July and are scheduled to go into effect in August on another $16 billion, but both lists include a relatively small number of consumer products. However, another round of tariffs on $200 billion in goods from China that would include a broader array of consumer items is currently under consideration and is expected to be finalized in September, Kleinhenz says.

Imports, meanwhile, have been at record levels this summer as retailers bring merchandise into the country before the tariffs can take effect, according to the NRF monthly Global Port Tracker report. It found that ports handled 1.85 million twenty-foot equivalent units (TEUs) in June, the latest month for which after-the-fact numbers are available. That was up 1.6% from May and up 7.8% year over year.

The federation also estimated that imports in July will be at 1.88 million TEUs, an increase of 4.4% year over year. August is forecast at 1.91 million TEUs, up 4.4%; September at 1.82 million TEUs, up 2.1%; October at 1.88 million TEUs, up 4.9%; November at 1.81 million TEUs, up 2.6%, and December at 1.79 million TEUs, up 4%.

In the first half of 2018, imports totaled 10.3 million TEUs, an increase of 5.1% over the first half of 2017, NRF reports. The total for 2018 is expected to reach 21.4 million TEUs, an increase of 4.4% over last year’s record 20.5 million TEUs.

Ben Hackett, founder of Hackett Associates, the consulting firm that analyzes the port data for NRF, notes that while the imports for 2018 have been downgraded marginally by his company, “we expect to see a larger downturn going into 2019 resulting from the trade war as well as an anticipated slowing of the economy. The volatility and non-fact-based decisions coming from Washington have created uncertainty.”

Shay declares, “We don’t want to see these economic gains derailed by protectionist trade policy. With retailers ramping up imports and stocking their warehouses before most of the proposed tariffs will take effect, an immediate impact on prices on consumer goods is unlikely, but that won’t last for long.”

He also observes that “just the mere talk of tariffs negatively impacts consumer and business confidence, leading to a decline in spending. It’s time to replace tariffs and talk of trade wars with diplomacy and policies that strengthen recent gains, not kill them.”

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