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Forecast: Back-to-school sales to hit seven year high

American consumers are ramping up their spending just in time for the critical back-to-school (BTS) season.

This year’s BTS sales are predicted to rise 5.1%, the highest increase in seven years, to a record $595 billion, according to retail research firm Customer Growth Partners’ 16th annual BTS Forecast. In 2017, BTS sales, which are based on the July to September period, rose 4.3%

“After a slow start due to the long winter, retail has inflected sharply up since late April, and has hardly looked back,” said Craig Johnson, president, Customer Growth Partners. “This is the most momentum we’ve seen in seven years, and spans almost all retail sectors — even long-lagging apparel, where growth has tripled to 4.8% from its annual growth of barely 1.5% since 2011. This year’s BTS marks a key turning point not just for retailers, but for overall consumer spending — which drives 69% of the economy.”

The key to BTS growth this year is the increase in disposable income due to the jump of 3.7 million full-time jobs since January 2017, which provides the steady cash flow households need, according to Johnson.

“People with only a part-time job or no job spend just on needs, while people with full-time jobs spend on both needs and wants,” he explained. “This is the first time in over a decade that more than half, 50.3%, of working age adults had a full-time job, up from 48% as recently as 2014.”

The BTS growth will be led by online retail, home furnishings and a major rebound in apparel. Here is CGP’s category forecast for 2018 BTS:

• Online: Up 10.6%;
• Home Furnishings: Up 5.9%;
• Apparel: Up 4.8%;
• Miscellaneous [Pet, Eyewear, Gift etc.]: Up 4.3%;
• Clubs/Superstores: Up 4.1%;
• Health/Personal Care: Up 3.1%; and
• Consumer Electronics/Appliances: Up 1.8%.

CPG expects declines in the following retail sectors:
• Sporting Goods, Books, Toys, etc.: Down 2.4%; and
• Department Stores: Down 3.5%.

High gasoline prices ($2.85/gallon, which is about 60 cents/gallon above 2017 at this time) have only had a minimal impact on retail spending, according to CPG. The company’s past data show that pump prices need to stay well above $3/gallon to noticeably reduce retail spending, and above $4/gallon to substantially reduce it. The newly announced tariffs have also had little impact to date on the consumer.

“Any potential tariff-based increase in retail prices for apparel or footwear may well yield — since demand for such goods is modestly price-inelastic — fractionally lower unit volume, but higher dollar sales,” said Johnson. “The massive growth in household Income will provide a halo over consumer spending even in the wake of new tariffs — and even a friendly tailwind to retailers’ sales growth. The question is whether the robust BTS momentum leads to sustained GDP growth into 2019 and beyond.”
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