Economics Group foresees modest rise in holiday retail sales


Font size: [A] [A] [A]

The Wells Fargo Securities Economics Group said it estimates that holiday retail sales will post a modest rise of 3.8 percent year over year, an increase in sales but off the levels experienced last year.
The looming uncertainty around the impending fiscal cliff, sluggish job growth and slowing real disposable income will serve as headwinds to consumer spending this holiday season. On the plus side, the very slow expansion of consumer credit should help to support some consumer spending this holiday season even in light of very slow income growth.
Even with a somewhat higher boost to retail sales in the fourth quarter of this year, the Economics Group said it expects real personal consumption expenditures to remain in the 2 percent range through the end of the year. The positive momentum in consumer confidence over the past few months will be balanced by slow personal income gains and economic uncertainty abroad along with uncertainty over domestic fiscal policy.

How are consumers different this year?

Over the course of the past year, the consumer environment has changed very little. There are several factors that will likely hold back consumer spending this year, including very slow personal income growth along with increased economic uncertainty and the impending fiscal cliff of government budget cuts and tax increases slated to go into effect in January.
The employment situation has improved compared to last year; however the improvement has been weak at best. In fact, even with nearly 2 million more Americans working, personal income growth has been slower compared to this time last year. As of September of this year, personal income was growing, on average, about 3.4 percent in nominal terms, down from a growth rate of 5.4 percent the same time last year.
Real disposable income, which strips out inflation and taxes, highlights the true underlying factor that will hold back consumers this holiday season. Real disposable income grew by only 0.9 percent, on average, for the year ended September 2012 compared to a growth rate of 2.1 percent over the year-earlier period. It is true that real disposable income has been trending up lately, however the upward trend at this point is likely too weak to have a meaningful effect on this year’s holiday sales prospects. In addition, there are downside risks to after-tax income beginning next year. The impending fiscal cliff, which includes a series of tax increases, has the potential to dramatically cut real disposable income on the part of consumers. The cut to disposable income will also likely effect consumers’ ability to pay back any credit-card debt racked up through holiday shopping.
One of the biggest positives this season is that consumer confidence has begun to bounce back, which could prove to be an important factor. The challenge with consumer confidence is that confidence needs to have supporting factors that will translate into actual spending, which is difficult, especially in light of global economic uncertainty and the fiscal policy uncertainty facing consumers.
Another positive factor this season is the increased availability of consumer credit, reflecting some uptick in credit-card borrowing on the part of consumers.
Fourth-quarter GDP growth will likely end up around 1.3 percent this year in contrast to the more robust 4.1 percent experienced in the fourth quarter of last year. The weaker state of this year’s holiday shoppers will play a key role in restraining economic activity through the end of the year.

Scranton Daily Deals powered by ReferLocal

Find us on Facebook!

"Like" us on Facebook for all of the latest news!

Follow us on Twitter!

Follow us for constant updates!