Citing the strong job market and higher wages, the National Retail Federation (NRF) has boosted its forecast for 2018 retail sales growth to a minimum of 4.5%. In February the association had predicted retail sales would climb 3.8% to 4.4% this year compared to 2017.
However, association executives warned that the imposition of tariffs — or even just the uncertainty generated by potential trade wars — could derail spending growth.
“There are many factors that can impact our forecast, but our overall outlook is optimistic,” said NRF Chief Economist Jack Kleinhenz in a statement. “Spending was weaker than expected at the beginning of the first quarter but has grown more rapidly since then and we continue to anticipate strong sales during the second half of 2018.”
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Retail sales for the first half of 2018 grew 4.8% year-over-year and have been up 4.4% year-over-year in the most recent three-month moving average. NRF now predicts the nation’s gross domestic product (GDP) will increase at the higher end of the 2.5% to 3% range that had been forecast earlier.
“We don’t want to see these economic gains derailed by protectionist trade policy,” said NRF President Matthew Shay in a statement. “Just the mere talk of tariffs negatively impacts consumer and business confidence, leading to a decline in spending. It’s time to replace tariffs and talk of trade wars with diplomacy and policies that strengthen recent gains, not kill them.”
Tariffs’ impact on consumer goods prices has been muted so far because the lists of affected goods have included a relatively low number of consumer products. The U.S. placed a 25% tariff on $34 billion worth of Chinese goods in July, and another $16 billion worth are scheduled to take effect in August. Another round of tariffs on $200 billion in Chinese goods that would include a broader array of consumer items is under consideration and is expected to be finalized in September. Imports have been at record levels as retailers bring merchandise into the U.S. before the tariffs can take effect, according to the NRF Global Port Tracker report.
Other factors could depress retail spending this year. “Uncertainty surrounding the trade war and higher-than-expected inflation due in part to increased oil prices could make consumers cautious during the fall season,” said Kleinhenz.
In addition to expectations for this year’s spending, the revised forecast takes into account government revisions to retail sales, personal income and consumption numbers from 2016 and 2017 that affect year-by-year comparisons.
