January 18, 2005|By Andrea K. Walker | Andrea K. Walker,SUN STAFF
Retail spending, which fuels about two-thirds of the nation's economy, will rise this year about half as fast as last year, as consumers are pinched by rising food costs, credit-card debt and stagnant incomes, the nation's top shopping trade group and other analysts predicted yesterday.
The traditionally bullish National Retail Federation, in a report released at its annual convention in New York, predicted 3.5 percent growth this year in a broad category of retail sales that includes general merchandise, apparel, home furnishings, electronics, sporting goods and hobby, book and music stores.
Last year, sales rose 6.7 percent compared with 2003.
"Consumers just won't have the wherewithal to spend this year," said Scott Krugman, a spokesman for the federation.
Discounters will probably feel the impact the most because middle- and lower-income shoppers are most likely to cut back spending in the face of rising costs. Wealthier families should keep sales at luxury stores thriving, the federation said.
Consumer spending is a key indicator of the overall financial health of the country. The federation predicted the slowdown even as the economy showed recent signs of improvement.
This month, the Labor Department reported that employers had hired workers in 2004 at the fastest pace in five years, adding 2.2 million people to payrolls. The Commerce Department reported that retail sales in December jumped 1.2 percent, the largest increase in three months. The cost of gasoline had also stabilized in recent weeks.
But analysts warned that energy prices rebounded this week amid worries about cold weather, turmoil in Iraq and a dip in crude oil and heating oil inventories. A recent decline in energy prices reflected unusually mild weather, especially in the Northeast.
Rising energy costs
The past two years saw the biggest wholesale inflation increases in energy costs since a 5.7 percent surge in 1990. Meanwhile, food prices at the wholesale level edged up 0.1 percent last month after rising 0.4 percent in November.
"The consumer has been remarkable in shouldering this economic expansion, but something has to give," Rosalind Wells, chief economist for the retail federation, said in a statement. "The labor market will continue to expand this year, though our concern is that modest employment growth will lead to modest income growth, which will put a financial strain on consumers."
The housing boom, which has helped keep the economy running, is also showing some signs of sputtering. Median home prices are expected to rise 5 percent to 5.5 percent nationwide this year, a smaller increase than in 2004. An expected rise in interest rates would continue the pressure on housing sales.
In a society where consumers have embraced credit cards as instant gratification, rising debt concerns could be dousing the impulse to buy.
"We have this issue of consumer debt sort of exploding," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. "What you have is an American consumer where the debt has never been higher and the savings never lower."
Davidowitz expects a 2.5 percent to 3 percent increase in retail sales in 2005.
Analysts said the year has gotten off to a slow start. At this time last year, shoppers were heading to the malls with checks from the tax break initiated by President Bush. The extra income helped fuel an increase in spending in the first quarter of 9.9 percent.
Unusual pessimism
Retail reticence was striking coming from the trade group, which recently reported a solid Christmas shopping season even as sales figures from individual retailers painted more of a mixed picture.
Sears Roebuck and Co. saw sales fall 3 percent when analysts had expected a slight increase. Pier 1 Imports Inc., Circuit City Stores Inc. and Express also reported shortfalls. Wal-Mart Stores Inc., the world's largest retailer, reported a 2.6 percent increase, lower than in previous years.
On the other hand, No. 2 discounter Target Corp. saw sales increases of 5.1 percent and Kohl's Corp., 3.1 percent.
Eugene S. Kahn, the chairman and chief executive of May Department Stores Co., resigned Saturday after a dismal Christmas season. Although no reason was given for his departure, the company, which operates Hecht's, Lord & Taylor and Filene's, saw its sales drop 7.9 percent in November and 3.5 percent in December.
The Christmas season seems to have spilled over into January. Retail chain store sales declined by 0.6 percent for the week ending Jan. 8, according to the International Council of Shopping Centers.
Stores are having a hard time getting rid of merchandise, even while slashing prices. Hecht's at The Mall in Columbia had several racks of clothes for 75 percent off, with large, red-and- white signs advertising the discounts. The Express store there also had large boxes of discounted clothes, some rumpled from shoppers digging through the bins.
Many of the stores have delayed putting out spring apparel because of the extra winter inventory, analysts said.
"I don't think it will be a spectacular year," said Britt Beemer, owner of America's Research Group, a Charleston, S.C., company that tracks shopping patterns. Beemer expects a 2.8 percent to 3 percent increase in sales for the year.
"Right now," he said, "I don't think consumers are really excited about spending."
