Facing new economic challenges in 2006, consumers may be forced to find new sources for spending power. The National Retail Federation (NRF) released its 2006 forecast today, predicting that retail industry sales (which exclude automobiles, gas stations, and restaurants) will increase 4.7 percent from last year. In its quarterly Retail Sales Outlook Report, released this morning at NRF’s 95th Annual Convention & EXPO, NRF expects a slowdown in the economy and consumer spending to restrain industry sales gains.
A stronger than expected 2005 saw retail sales increase 6.1 percent, slightly higher than the 5.6 percent gain NRF had been forecasting. However, tough comparisons, rising energy costs and a slowdown in the housing market have caused NRF to expect subdued retail sales growth in 2006.
“With the housing market beginning to slow, consumers will be challenged to find new sources of spending power.” said NRF Chief Economist Rosalind Wells. “The strong retail sales we saw in the second half of 2005 will be replaced by more conservative spending in the New Year.” NRF expects 2006 first quarter retail sales to increase 5.0 percent, compared to gains of 6.5 percent in the fourth quarter of 2005.
The Federal Reserve will play a major role in the consumer’s ability to bounce back in 2006. As Ben Bernanke takes over, NRF expects the Fed policy of vigilance toward inflation to continue. In the near-term, underlying inflationary pressures appear to be under control. Productivity is still quite high and, as a result, unit labor costs are low. These trends should give the Fed some peace of mind.
While NRF is more cautious about the 2006 outlook, several categories of specialty retailing should continue to achieve solid sales growth. They include clothing and accessory stores (which include shoe stores and jewelry stores), food and beverage retailers and health and personal care retailers. These categories are expected to see steady sales gains in the 4.0 - 5.0 percent range.
Some of the sales trends by type of retail establishment seen last year will continue into this year, but with somewhat smaller increases. The highest growth last year was achieved by building material stores, warehouse clubs, and electronic shopping. NRF expects building-related outlets to lose some momentum as housing softens. The same is true of furniture stores. Electronics retailers should be able to sustain strong demand for their merchandise as product excitement and attractive pricing will lure consumers. Sales gains at discount stores improved at year-end as increases at luxury goods retailers eased.
The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees - about one in five American workers - and 2004 sales of $4.1 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations.
