Retail Forecast 2013

By Phillip M. Perry

Overcast with clearing skies — That’s the economic forecast from a major research firm as retailers enter a new year. Drizzly conditions will remain at least for the first half of 2013 as consumers hold tight to their pocketbooks. By the summer, though, light should break through the clouds as the resolutions of critical national uncertainties encourage corporate hiring, capital investment and consumer spending.

The coming year as a whole is not expected to bring significant relief over 2012.

“We expect the recovery to remain lackluster,” said Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics, a research firm based in West Chester, Pa. (economy.com). “The pace of growth will be too slow to meaningfully bring the unemployment rate below 8%.”

The numbers tell the tale. Moody’s expects GDP to increase by 2.4% in 2013. That’s not much of an improvement over the 2.3% anticipated for 2012 when figures are finally tallied.

Moody’s forecast might not seem all that bad, given that the GDP increase for an economy in average growth mode is 2.5%. However, a nation recovering from a recession needs a more robust expansion.

“By most measures, this recovery is among the weakest in the past 50 years,” said Koropeckyj.

What’s holding things back? Koropeckyj points to a number of areas:

“Fiscal restraint on the local and national level, weaker global demand, a housing market that has hit bottom but has a long way to go to become healthy, and weak income growth are all constraining a stronger pickup in employment.”

Other factors are the weakening economies of China and Europe — both important export markets.

All those factors are coming together to subdue the public mood.

“Consumer confidence is still at a level consistent with a recession,” said Scott Hoyt, Moody’s senior director of consumer economics. “Consumers remain concerned about economic conditions. There is still high unemployment, weak growth in wages, volatile stocks and high gasoline prices. There are a lot of things to keep consumers on edge.”

Retail sales: Retailers will suffer as concerned consumers hold onto their purse strings.

“Retailers are most concerned about jobs and income,” Hoyt explained. “The economy is not adding jobs fast enough to lower unemployment. Wage growth remains weak, and it is not putting the cash in the pockets of consumers that retailers would like to see.”

Moody’s expects pressure on retailers early in the year because of the major weight of a constraining federal fiscal policy. Consumers will continue to be impacted by the anticipated terminations of two initiatives: the social security payroll tax holiday and extended unemployment insurance benefits. Reduced federal spending, by eliminating some jobs, will also have an indirect but significant effect on consumers.

“We expect the environment to be difficult in 2013, with core retail sales growing at some 2.3%,” Hoyt said.

That pace represents a de-escalation from the 3.2% anticipated when 2012 figures are finally tallied. To put those figures in context, average annual core retail sales grew at 4.6% prior to the 2008 financial crisis. (Core retail sales exclude volatile revenues from auto sales and gas stations).

Good news: If the economy remains troubled, corporations have managed to thrive. By piling up mountains of cash, they have positioned themselves for a fresh round of capital and labor investment when the time is right.

“Businesses are in excellent financial health; their costs are down and they have become highly competitive and profitable,” Koropeckyj said. “Employers have little slack in their labor forces so layoffs have declined dramatically.”

By the fall of 2013, Moody’s expects major market uncertainties to be resolved as lawmakers bridge their differences, raise the Treasury debt ceiling and agree to longer-term tax and spending policies.

“Combined with the Fed’s aggressive actions and a more stable Europe, all of this will ease business fears,” Koropeckyj said. “Growth will accelerate and unemployment will begin to fall.”

Phillip M. Perry is a New York City-based business writer.