How is the retail economy doing?
Not bad, if elected officials stay out of the way
If you’re not quite sure what to make of the economy — and how tightly you should close your wallet — you’re not alone.
Some data point to growth. Some data point to a slowdown. Some retailers are flailing. Others are optimistic.
One retail trade association is among those looking at 2019 through a rosier lens.
The National Retail Federation on Wednesday forecast that retail sales this year will rise between 3.8 percent and 4.4 percent to more than $3.8 trillion.
“We believe the underlying state of the economy is sound,” said Matthew Shay, president and CEO of the Washington D.C.-based organization. “More people are working, they’re making more money, their taxes are lower and their confidence remains high.”
He added a caveat. “Consumers are going to spend as long as they’re confident about the economy,” Mr. Shay said. “The number one job of our elected leaders is sort of the Hippocratic Oath to first do no harm. Job one is to get out of our own way and avoid the selfinflicted sorts of mistakes that can have a negative impact on consumer confidence.”
To that end, he said the government should avoid another shutdown when the short-term funding expires Feb. 15. He also pointed to President Donald Trump’s ongoing trade war and slow global economic growth as risks.
Preliminary estimates show that retail sales during 2018 grew 4.6 percent over 2017 to $3.68 trillion, exceeding NRF’s forecast of at least 4.5 percent growth. The 2018 numbers are based on Commerce Department data through November but include NRF estimates for December because the agency has yet to release data from during the government shutdown.
While unemployment is low and wages have been growing, those benefits have not been spread evenly, and health care and housing costs continue to rise, said Seema Shah, senior analyst at Bloomberg Intelligence.
And consumers are carrying a lot of debt. In a December note, Ms. Shah stated that household credit card debt swelled by 4.5 percent to $844 billion in the third quarter.
“This, plus growth in other debt, including auto and student loans, suggests that while consumers may be more confident in their ability to repay debt, they also need to deplete
their savings and use credit to lift their spending amid paltry wage growth,” she said.
Meanwhile retailers are all vying for those consumer dollars.
“When people are spending, they’re curating their spending, and some brands maybe aren’t as relevant as they were in the past,” Ms. Shah said.
“There are a lot of moving parts and people aren’t sure how things are going to shake out,” she said.
Mixed earnings
Retailers have been reporting mixed earnings for the fourth quarter. James Bohnaker of IHS Markit said that that’s “more of a function of what individual companies are going through — how well they’re adopting e-commerce and omnichannel platforms.” Overall, the end of 2018 showed a strong end of the year for retail sales.
“The job market is the best thing going for the economy and consumers,” he said. “Hiring is strong. Wage growth is improving and those are the most important things for households, as long as that’s going strong.
“But policy decisions could slow things down,” he said.
It’s just two months into 2019 and a handful of stores have declared bankruptcy.
Apparel stores Charlotte Russe and Gymboree are among the chains that have filed for Chapter 11 bankruptcy protection. Trade publication Retail Dive put the tally at six bankruptcies as of Feb. 5.
That’s on the heels of record retail defaults in 2017 and another tough year in 2018.
Bob Schulz, managing director at S&P Global Ratings, expects that in 2019, some sectors will do well — off-price chains, online stores and home improvement.
“Some that have been struggling — department stores and apparel — those will continue the process of trying to get the right footprint.” he said.