World Business

Action Economics says this could be the gloomiest holiday season in decades for the retail industry

By Rick MacDonald

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Somewhere, the Grinch is smiling. This holiday shopping accustom—specifically, the combined months of November and December—will likely show worse year-over-year deal out in small portions sales and consumer expenditure figures than the loathsome 1991 season, with projected declines that falsehood in striking distance of prior 1980 and 1974 lows. Falling gasoline prices, which may allow consumers to divert money to other purchases, may provide some cushion to Christmas retailers, but likely not sufficiency to keep this from being the ugliest sales season in decades.

We at Action Economics forecast that the combined November-December U.S. retail sales figures should post big year-over-year declines of 6.5% overall and 2.7% excluding autos this holiday season, following consistent 4% to 8% gains in either year since 2002, and a steady string of positive putting out figures since the start of the data set in 1992.

Meanwhile, nominal and real (inflation-adjusted) figures for the sake of personal consumption expenditures (PCE), a measuring instrument of consumer spending, which are smaller volatile given inclusion of the relatively stable services sector, should show near-flat year-over-year readings this year following a pattern of positive growth in each year back to the 1991 recession. Even if we exclude the comatose vehicle sector from the consumption figures, we still-house expect only a 1.2% year-over-year actually being gain in 2008 that should prove the weakest since the same 1.2% gain in 1991.

As for the festival season, we expect nominal PCE to rise just 0.6% from the prior-year two-month period. This would mark the weakest holiday sales reading in the history of the monthly PCE series, which dates back to 1959. For the full fourth quarter, if we consider at year-over-year real consumption back to 1960, the 0.2% drop we project this year is worse than the 0.8% gains in both 1990 and 1991, and even below the zero and 0.1% figures seen in the nasty years of 1980 and 1981. The only worse performance in this measure was the -1.5% reading in 1974, which reflected the substantial impact of the 1973 Arab-Israeli war and OPEC oil lay an embargo upon on the people secret in the economy.

The big nominal sales drops this leisure encircling deliberate plummeting prices while well as falling real sales, so the important nominal drops may overstate the hard casualty falling on department supplies and other holiday retailers. Yet, the very painful declines in the various "real" measures are also impressive, and should account for the worst retail shopping season in the careers of most financial mart participants.

Some of the more prominent deal out in small portions holiday sales forecasts show a significant globule in sales growth, though these forecasts are every one of notably cautious relation to sales trends over the last few months. Indeed, two out of three forecasts discussed below were issued in mid-September, and so predate the sharp deterioration in the system that has occurred since that time.

The International Council of Shopping Centers (ICSC) expects growth of 1.0% since the traditional holiday season (November and December) from chain stores. This compares with 2.1% in 2007, 2.9% in 2006, and 3.6% in 2005. Note that this forecast would still have sales outpace the 0.5% gain posted up in 2002.

The National Retail Federation (NRF) expects total f retail sales of 2.2%, which marks the lowest tally before this 2002, at the time that sales rose 1.3%. Note that this forecast was issued Sept. 23—predating utmost of the downturn.

Retail Forward expects holiday sales growth of 1.5% compared with 2.7% in 2007, 3.8% in 2006, and 7.0% in 2005. Growth is expected to be the weakest ago 1991, by this forecast also issued in mid-September.

• As the ICSC indicated in its holiday sales calculate, consumers this give relish to will be characterized in the manner that more frugal, adapted to practice, and reserved than in recent years. Consumers will be assumed to be worried about jobs, retirement savings, and protection values, and will target drop price points.

• Stores will push discounts early and aggressively to try to shore up sales early in the make palatable. As similar, we would not be surprised to have an account the usual news of stronger-than-expected Thanksgiving weekend results.

• Aggressive discounting may imply downside risk for various core inflation measures, but should provide relieve for "real" spending.

• Online shopping should endure to grow. Research outfit Forrester expects online deal out in small portions sales to approach $44 billion during November and December, which represents a 12% money-making over the year. While this would mark the slowest rank of growth since inception, it continually would significantly outpace the brick-and-mortar sales rate.

Consumers have initiated a powerful pullback in spending relative to income candid as we are entering the holiday season, with deleveraging efforts that are well gauged by the free fall in stock prices and the collapse in various consumer self-reliance measures malice the usual boost associated through falling gasoline prices. All the various year-over-year sales measures will challenge or surpass 1991 lows, by various measures also taking at run at troughs set in 1980 and 1974, which were arguably the discomfit two years for holiday spending since World War II. Businesses are likely also deleveraging rapidly, with an associated blow to the labor emporium that is likely fanning household pessimism.

In amount, retailers face a at variance backdrop for holiday sales, though we have yet to know exactly that records will be broken as we pass through the put down shopping season in decades.

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