Retail sales continued to defy consumer’s reports of slipping confidence in the economy, as retail sales posted an unexpected August gain in the face of consumer confidence levels hitting a 10-month low.
According to the National Retail Federation (NRF), August retail sales in the category that includes clothing, jewelry and accessories rose a healthy 4.8 percent from a year ago, and were up 0.7 percent seasonally adjusted from July. Figures released by the Commerce Department also showed optimism, with total retail sales rising a slight 8% for the month.
“In spite of a sluggish economy, wavering consumer confidence, and unusually warm weather in August, consumers hung in there and continued to spend,” said NRF Chief Economist Rosalind Wells.
Retail sales seem to contradict all reports coming from the Conference Board, which reported another drop in consumer confidence in September. Confidence fell 1.3 percent, to a 10-month low. It was the fourth consecutive monthly decrease. The monthly report, while not immediately encouraging for the retail sector, also revealed that consumer’s attitude toward the future may nonetheless signal a recovery in the economy.
“Weak labor market conditions continue to erode confidence,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “But while consumers are not as positive about current business conditions, they are more optimistic about the outlook than last month. Historically, this trend is prevalent during a recovery.”
4.0% Holiday Sales Increase Predicted
While any end-of-year predictions hinge on the what happens in the Middle East and whether the United States enters into a war with Iraq, The National Retail Federation (NRF) is remaining positive, forecasting 2002 holiday retail sales to increase 4.0 percent on a year-over-year basis. NRF defines “holiday retail sales” as sales in November and December for retail stores. This year’s moderate sales prediction approximates the 4.3 percent gain seen for the 2000 holiday season. Last year’s holiday retail sales were up 5.6 percent — higher than most industry-watchers had anticipated.
“Consumers this year have been cautious in their spending, but nevertheless continue to bolster retailers’ performance,” said NRF Chief Economist Rosalind Wells. “NRF sees the economy growing around 3.5 percent in the second half of this year, which should be a solid enough environment for reasonably good holiday sales.”
Wells notes that a sluggish economic recovery is the main cause for consumers’ cautious approach. “Employment is growing, but slowly, and incomes are being restrained by soft labor markets,” said Wells. “Consumer and business confidence have wavered due to corporate governance concerns, the stock market has declined, threats of terrorism persist, and the chance of war with Iraq looms.”
However, Wells emphasizes that there are some positive trends that will lead to a continuation of the recovery. She believes chances of a “double dip” recession are slim, as interest rates and inflation remain very low.
According to preliminary results from the first installment of the 2002 NRF Holiday Consumer Intentions & Actions Survey, conducted by BIGresearch, consumers plan to take a sensible approach to holiday shopping this year. The majority of consumers surveyed – 62.6 percent – said they plan to spend the same amount on holiday shopping in 2002 as they did last year. Almost one third, or 29.5 percent, said they plan to spend less, while only 7.9 percent said they plan to spend more.