CSCMP's Supply Chain Quarterly
March 29, 2020
Forward Thinking

Consumer spending props up wobbly economy, NRF says

Peak season e-commerce is forecast for hot growth over winter holidays even as manufacturing tumbles to 2009 levels.

The American consumer is continuing to roar, piling up purchases for the looming peak holiday shopping season even as economic indicators like wobbly manufacturing statistics and trade war turbulence reveal soft spots in the global economy.

Holiday retail sales for the U.S. peak season during November and December are expected to increase between 3.8 percent and 4.2 percent over their 2018 levels, coming in slightly higher than the average holiday sales increase of 3.7 percent recorded over the previous five years, according to a forecast released today by the National Retail Federation (NRF).

The increase would produce total sales of between $727.9 billion and $730.7 billion for purchases excluding automobile dealers, gasoline stations, and restaurants. The NRF holiday forecast is based on an economic model that takes into consideration a variety of indicators including employment, wages, consumer confidence, disposable income, consumer credit, and previous retail sales.

"The U.S. economy is continuing to grow and consumer spending is still the primary engine behind that growth," NRF President and CEO Matthew Shay said in a release. "Nonetheless, there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors, and political rhetoric. Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by continued deterioration of these and other variables."

The forecast came two days after fresh statistics showed that economic activity in the U.S. manufacturing sector contracted in September, according to the Institute for Supply Management® (ISM®). ISM reported that its PMI manufacturing measure for the month registered 47.8 percent, a decrease of 1.3 percentage points from the August reading of 49.1 percent. That contraction continued six straight months of slumping manufacturing, as the key stat sank to its lowest reading since June 2009, the last month of the Great Recession.

Another weight around the ankles of the stumbling economy could be the Trump Administration's spiraling tariff war with China. Retailers are using myriad mitigation tactics to limit the impact on consumers, and the impact will ultimately vary by company and by product, NRF said.

The ultimate effect of those tariffs on holiday spending - either directly or through consumer confidence - remains to be seen, since conditions seem to change  daily. Some holiday merchandise - including apparel, footwear and televisions - is already subject to new tariffs that took effect September 1, while other products will have the tariffs applied on December 15, the trade group said.

Despite those industrial doldrums, consumers continue to shop. NRF expects online and other non-store sales, which are included in its forecast total, to increase between 11 percent and 14 percent to between $162.6 billion and $166.9 billion, up from $146.5 billion last year. Those strong retail figures will ripple through the economy, pushing retailers to boost hiring despite a historically tight labor market. NRF expects retailers to hire between 530,000 and 590,000 temporary workers this holiday season, which compares with 554,000 in 2018.

"There are probably very few precedents for this uncertain macroeconomic environment," NRF Chief Economist Jack Kleinhenz said in a release. "There are many moving parts and lots of distractions that make predictions difficult. There is significant economic unease, but current economic data and the recent momentum of the economy show that we can expect a much stronger holiday season than last year. Job growth and higher wages mean there's more money in families' pockets, so we see both the willingness and ability to spend this holiday season."

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