The cost of economic uncertainty
It’s no secret that our economy runs on consumers’ willingness to buy — everything from pet supplies to clothing to appliances. But leading up to the always-crucial holiday season, how are retailers supposed to make sense of the different data?
Some are predicting a slight drop in sales, while a survey of retailers is expected a slightly better season than last year, according to a Wall Street Journal story.
The discrepancies between forecasts and reality underscore the tricky balancing act retailers have to perform to avoid being stuck with unsold gear if consumers prove cautious or, alternatively, missing out on crucial sales in a two-month period when many retailers book 25% to 40% of their annual sales.
Market-research firm ShopperTrak Corp. expects that sales in November and December will rise at a slower rate than a year ago—a 3% increase versus last year’s 3.7% gain. (ShopperTrak counts foot traffic using 50,000 cameras mounted on retailers’ ceilings, blends it with data provided by stores and takes account of macroeconomic trends to make its forecast.)
Meanwhile, a survey of 14 retailers conducted in August by management consultancy Hay Group found three out of four expect a better holiday than last year, and that many will hire more seasonal help as a result.
This optimistic story comes on the same day the U.S. Census Bureau reported that median household incomes fell to $50,054, according to the New York Times. Incomes were highest in 1999 at $53,252 and the last time incomes were this low was 1996.
“Median household income, adjusted for inflation, was 8.1 percent lower than in 2007, the year before the most recent recession,” the Times said.
That’s more troubling news for the U.S. economy and follows Friday’s disappointing jobs number. More from The Journal:
In the U.S., retail patterns have been uncertain since the recession, with consumers turning out for the holidays and even into the New Year but fading in the spring. Back-to-school sales were unexpectedly strong, but retailers are unsure that trend will carry into Christmas.
The culprit is the slow recovery. While the heavy job losses of the downturn have ceased, employment gains have been slow. The U.S. added just 96,000 jobs in August. That leaves 12.5 million people still out of work and the rest keeping a close eye on their own jobs.
Volatile gasoline prices and the coming presidential election are adding to the uncertainty this year, said Bill Martin, executive vice president at ShopperTrak.
Even while consumers’ incomes are dropping, they do seem to be spending more money. Economists predicted that retail sales rose in August, according to a Bloomberg story. If the predictions hold true when actual numbers are released Sept. 14, that would be the second straight month of retail sales gains.
All the uncertainty makes it hard for the Targets, Gaps and other stores dependent on consumer confidence and open wallets to figure out how to staff and stock shelves for the remainder of the year. Getting it wrong could be the difference between posting a yearly profit or loss.
And obviously there’s no guarantee that back-to-school sales are any prediction of holiday sales. Other bellwethers of the economy, such as manufacturing, are also struggling. From Bloomberg:
Manufacturing, a pillar of the recovery from the recession, is now showing signs of stress as global growth slows. Factory jobs had their biggest decline in two years, last week’s payroll report showed. Factories also reduced the employee workweek.
The drop in employment and hours means output probably cooled. Industrial production was little changed in August after four months of gains, another report a Fed report on Sept. 14 may show according to economists surveyed.
As Keith Hall wrote in a recent piece for U.S. News & World Report, we all stand to lose as the economy plods along:
We should feel more than just impatience towards this recovery; we should be worried. There are serious, permanent consequences to this. Household balance sheets remain a mess. Real household wealth has not recovered and remains down by $11 trillion. After growing by 13 percent over the prior three years, real wealth fell by 14 percent between 2007 and 2010, with every income range but the lowest losing ground. In 2010, just 52 percent of families were able to save with precautionary reasons being the most cited motivation. This has crowded out saving for more traditional family goals like homeownership and education, which accounted for just 11.4 percent of savings in 2010.
There’s a lot riding on consumers and how they’re planning to allocate their scarce resources. Here’s hoping those wallets stay open.