NRF Sees 3.8-4.2% Holiday Season Retail Growth, Cautions About 'Uncertainties'
The National Retail Federation tempered its strong outlook for the Nov. 1-Dec. 31 holiday season Thursday with concerns over trade, interest rates, global risk factors and political rhetoric that could erode consumer confidence. It forecast 3.8-4.2 percent growth from 2018 and combined in-store and online retail sales of $727 billion-$730 billion./p>
On a Thursday webcast, NRF Chief Economist Jack Kleinhenz acknowledged “uncharted territory,” and "many moving parts,” citing the long, positive run of the U.S. economy amid geopolitical uncertainty. “We have never been in a 120-month expansion,” Kleinhenz said, and there are “very few precedents for the uncertain macroeconomic environment.”
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The overall strong holiday retail season forecast is “well above the unusually low growth we saw last year” in the 2 percent range, said CEO Matthew Shay. The executive put trade at the top of the list of uncertainties contributing to a “bit of a slowdown, which has also been affected by interest rates, global risk factors and political rhetoric." The uncertainty on those issues has been “the overarching theme of the economy this year while we continue to see this tremendous growth,” he said. By year-end, he noted, virtually everything imported from China -- capital goods, an input or finished product for resale to a consumer -- "is going to be subject to tariffs of one degree or another.”
That uncertainty “makes it difficult to do forward planning,” said Shay. Tariffs haven’t shown up in a dramatic way on retail prices for consumers, but how that will play out during the holiday season “remains to be seen.” Retailers are adopting myriad approaches to tariffs but don't want to pass on costs to consumers “if they can avoid it,” he said. Most see growth opportunity in the economy and don’t want to jeopardize that, he said: “All are hoping that we’re going to find a constructive way to address these issues and resolve our trade disputes and move forward.”
It’s not easy to draw a straight line between tariffs and consumer prices, but more consumers are becoming aware of tariffs and potential impact on pricing, Shay said. A recent NRF survey showed eight in 10 consumers are “concerned about the impact of tariffs on prices, without regard to whether they’ve felt them yet.” That concern could affect their confidence and the economy's future track, he said. He noted tariffs aren't fully imposed on all goods yet.
Though consumers have been shielded from the effects, Shay said, tariffs have come with “enormous cost and friction in the economy." Those costs “have been buried,” he said -- either “eaten by the supplier” or the manufacturer. He cited farmers who have "foregone sales in a market that used to be very lucrative.”
On what NRF expects following imposition of the next round of List 4B Section 301 tariffs, due Dec. 15, and for 2020 when tariffs are to be in place for virtually all imports produced in China, Shay cited the resourcefulness and commitment retailers have shown protecting price tags from higher costs. Strategies include taking a hit on margin, forcing costs on a supplier or spreading them across other goods, he said, but “for how long can they do it?” The Trump administration made a "calculus" that achieving a political objective was worth the price of tariffs, he said. He backs the effort to restructure the U.S. trade relationship with China but tariffs aren't the appropriate tactic in the trade war with China, Shay said, saying NRF favors “normal channels,” citing World Trade Organization efforts. Going through traditional multinational, collaborative channels is better, “not on a unilateral basis," he said.
Commenting in Q&A on NRF’s most recent port tracker report (see 1909100012) saying next month's imports at container ports are expected to be 8.8 percent higher than November 2018, Shay said much of goods coming to the U.S. in November will be for 2020, but some will be for replenishment. “I think this is part of the compression of the supply chain,” he said: “People are looking at Dec. 15 and the imposition of additional tariffs and thinking, ‘Can we get them in before that?’”
Shay deflected questions on how impeachment inquiry distractions could affect consumer shopping behavior, saying, “Without taking a position on partisan politics, that’s not our space.” He included impeachment proceedings in a broader basket of uncertainties that he said are outside the control of retailers and consumers in the U.S. Others are interest rates and geopolitical issues in Hong Kong, the U.K. and China.
NRF is focusing on areas where it can have influence, such as federal policy decisions that would “strengthen consumer confidence and send positive signals to the market generally and to our partners around the world,” Shay said. Those include passing the U.S.-Mexico-Canada Agreement on free trade and resuming trade talks “in a productive way,” with China.