1995 promises to be good, but not banner, year RETAIL

January 01, 1995|By Jay Hancock | Jay Hancock,Sun Staff Writer

The Federal Reserve's job, said its late Chairman William McChesney Martin, is to remove the punch bowl just when the party gets going.

The Fed's challenge these days is that many retail consumers have smuggled their own hooch into the economic celebration, thwarting Fed Chairman Alan Greenspan's bid to be a calming influence. And they're starting to bother the neighbors.

A year ago, long-term mortgage rates had fallen to their lowest levels in more than 20 years. For somebody with a $100,000, 30-year mortgage, refinancing the rate from 10.5 percent to 7 percent would have yielded yearly savings of $2,993.

People aren't putting such savings under their mattresses. They've been spending them on toys, furniture, cars and computers, helping to drive up Maryland's sales tax receipts by nearly 11 percent for the third quarter of 1994 compared with the same period in 1993.

"I think '93 and '94 have clearly shown a relatively high level of confidence that consumers have in their income levels, in the economy . . . and that has been very good for the retail industry," said Jay Scansaroli, a retail consultant with Arthur Andersen LLP in New York.

Even though the Fed has been raising rates this year, homeowners who refinanced at fixed rates in 1993 and early 1994 are largely immune to the pain. Roughly 70 percent of homeowners hold fixed-rate mortgages, estimated Barry Haveman of HSH Associates, a Butler, N.J.-based financial publisher.

Other loans are also resisting the Fed's upward pressure, economists report. Intense competition has kept credit-card rates from rising as much as overall loan prices.

The result is that consumers have been less affected by rising rates than businesses and investors who borrow more frequently and for shorter terms.

That's good news for stores. Forecasters expect 1995 to be much like 1994 for retailing: solid growth overall -- in the 5 percent range -- with some categories doing better and some worse.

Analysts expect continued strong results in sales of electronics and home furnishings for 1995. Apparel sales may improve from a poor 1993 and a lackluster 1994, but few expect an especially good year.

But forecasters don't expect overall retail sales to get much better than they are now.

"If the general economic climate continues to improve as it's been improving, it's going to be a pretty good year for retailing, not a banner year," said Tom Saquella, president of the Maryland Retail Merchants Association.

Many expect that the Fed will raise rates again in early 1995 to restrain an economy that is still growing quickly -- thanks largely to free-spending shoppers.

Even if shoppers continue to spend freely, "you're going to have more competition for the retail dollar," Mr. Saquella said. Dozens of operators plan to add Maryland stores in 1995, including huge merchandisers such as Wal-Mart, Best Buy, Target, Home Depot and CompUSA.

And if consumers are partly shielded from higher rates, stores aren't.

"As interest rates go up, they will affect retailers negatively because they will affect their ability to finance inventory," said Richard Ruggieri, a partner in the Baltimore office of Deloitte & Touche LLP, an accounting and consulting firm. "Retailers will have to improve control of inventory levels."

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