Retail Forecast 2016
How will retailers fare in 2016? Very well, according to experienced market watchers.
“We expect core retail sales to grow 5.3% in 2016,” says Scott Hoyt, senior director of consumer economics for Moody’s Analytics, a research firm based in West Chester, Pennsylvania. (Core retail sales exclude volatile revenues from auto sales and gas stations.) That is notably faster than the 4.2% rate anticipated when 2015 sales are finally tallied. The 2015 experience was, again, slightly better than the 3.9% growth of 2014.
If Moody’s is accurate in its forecast, retailers can rejoice, as the anticipated rate is not that far off the roughly 6% increases commonly enjoyed during the robust decade of the 1990s, as well as the fondly remembered period just prior to the great recession.
HEALTHY ECONOMY: The sunny retail outlook reflects a generally improving economy.
Moody’s expects GDP to grow by 3% in 2016, a quickening pace from 2.5% anticipated for 2015. Better times should bolster payrolls: Unemployment dropped to 5% in late 2015, down from a peak of 10% in 2009 and a rate nearly synonymous with the just-under 5% economists believe represents a condition of “full employment.” Moody’s anticipates a 4.9% average unemployment rate for 2016.
Healthy employment means higher pay, fatter wallets and busier checkouts.
“Wage gains are now materializing across a number of industries and regions,” said Sophia Koropeckyj, managing director of industry economics at Moody’s. And shoppers should be more willing to spend their earnings because of growing consumer confidence, greater credit availability, and lower gasoline prices.
POSITIVE FACTORS: Among other factors contributing to a healthier selling environment:
• Housing: “The ever-tightening market for new homes will likely spur stronger construction activity in 2016,” said Koropeckyj.
Housing starts are expected to rise 28.9% for the year, a considerable improvement over the 14.3% figure expected for 2015 when final numbers are tallied. A robust housing sector fuels supplier revenues and employs more people, generating more disposable income.
• Corporate profits: “Corporate profit growth is expected to accelerate some 9.1% through 2016,” said Koropeckyj. That is a considerable improvement over 2015, when companies eked out growth of only 0.7% as a result of the strong dollar and a decrease in energy revenues.
Healthy earnings lift all boats as payrolls increase and expansion-related investment in capital equipment bolsters supplier revenues.
Challenges remain. Businesses should keep a wary eye on the soft European and Chinese economies, global terrorism, a volatile American stock market and political gridlock in Washington. Even so, signs point to continuing strength.
“We think the economy should weather the current uncertainties,” said Hoyt.
BOTTOM LINE: A healthier jobs picture should make all the difference in 2016.
“Early in the year, retailers should watch what is happening with employment,” added Hoyt. “If the labor market tightens as expected, that will lead to higher wages and more consumer spending.”
Philip M. Perry is a New York City-based business writer.