NRF raises its 2018 retail sales forecast

There is often a general consensus along the lines of “when retail sales are good, the economy is good.” It makes sense to a large degree and, really, why wouldn’t it after all? Consumer spending accounts for roughly 70% of total United States economic output, making it the largest piece of the domestic economic pie.

While the importance of retail sales, as it relates to economic output is well know, it is especially notable in light of data coming from the National Retail Federation (NRF) today, with the NRF upping its 2018 retail sales forecast.

In the beginning of 2018, the NRF said it expected retail sales for the year, excluding automobiles, gas stations, and restaurants, to increase between 3.8%-4.4% annually. But that number is now at “a minimum of 4.5% over 2017, noting it expects to gains to come from tax reform, as well as other “positive economic inputs,” but also cautioning that the impact of tariffs could lower consumer confidence.

Looking at the first half of 2018, NRF said that retail sales rose 4.8% annually and are up 4.4% annually for the most recent three-moth moving average. And it also said that it expects GDP to come in at the higher end of 2.5%-3% range.

“There are many factors that can impact our forecast, but our overall outlook is optimistic,” NRF Chief Economist Jack Kleinhenz said. “Spending was weaker than expected at the beginning of the first quarter but has grown more rapidly since then and we continue to anticipate strong sales during the second half of 2018. Despite this upgrade in our forecast, uncertainty surrounding the trade war and higher-than-expected inflation due in part to increased oil prices could make consumers cautious during the fall season.”

The tariff impact looms large on multiple fronts, with the NRF observing that tariffs of 25% on $34 billion of Chinese goods took effect in July, with another $16 billion slated for this month.

NRF said that both these sets of tariffs “include a relatively low number of consumer tariffs, but that does not mean retail sales are out of the woods, with a pending round of tariffs on $200 billion in goods out of China including more consumer items and could be in effect by September.

The tariff impact has been notable in U.S. import levels through 2018, too. The most recent edition of the Port Tracker report issued by the NRF and maritime consultancy Hackett Associates addressed that, with the report noting that tariffs on most consumer products have yet to take effect but retailers appear to be getting prepared before that can happen.

Jonathan Gold, NRF’s Vice President for Supply Chain and Customs Policy said in the report that much of that is to meet consumer demand as tax reform and a thriving economy drive retail sales, but part of it seems to be concern over what’s to come.

The good news for consumers is that avoiding tariffs holds off price increases that will inevitably come if the reckless and misguided trade war is allowed to continue,” he added.

The intersection of tariffs and retail sales is a bit fluid, to be sure, at the moment, but things appear to be solid on the retail sales front, at least in the short term. A year from now or so, though, it could be quite a different story. Stay tuned.