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As Economy Wobbles, NRF Revises 2017 Retail Sales Downward

With key economic indicators showing some weakness, the National Retail Federation has adjusted its forecast for retail sales for 2017, with sales now expected to increase between 3.2% and 3.8% rather than the 3.7% to 4.2% forecast earlier this year.

“Meaningful revisions to retail sales numbers by the Census Bureau and similar revisions to personal income and consumption by the Bureau of Economic Analysis have both affected our forecast and have required us to adjust our 2017 sales projection,” said NRF chief economist Jack Kleinhenz. “While weaker-than-expected spending in the first quarter along with decelerating inflation has also contributed to the revision, NRF anticipates stronger sales heading into the fall and holiday seasons.”

Chris G. Christopher Jr., executive director for U.S. economics at IHS Markit, said last week that Hurricane Harvey impacts are taking about 0.3 percentage points off of real consumer spending growth in the third-quarter, with IHS now predicting third quarter real consumer spending growth outlook at 2.7% to 2.8%.

[Read more about Hurricane Harvey’s impact: US Manufacturing and Spending Seen Taking Short-Term Hit From Hurricane Harvey’s Impact]

In July, retail sales increased 0.6% over June on a seasonally adjusted basis, triple the revised 0.2 percent growth seen in June, according to NRF data. Sales increased 3.5% year-over-year.

As for inflation, the Consumer Price Index rose 0.1% in July on a seasonally adjusted basis. The so-called core index, which excludes the volatile food and energy sectors, also rose 0.1%, the fourth month in a row it increased by that amount. Apparel prices were up 0.3% compared to June, ending a four-month skid, but were off 0.4% from July 2016.

James Bohnaker, associate director of U.S. macro and consumer economics at IHS Markit, said,July’s consumer price data reinforces our view that that underlying inflation in the U.S. economy is increasing very gradually…There is no real push from any of the usual suspects; inflation is tame across the board.”

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Bohnaker said the inflation outlook won’t likely change anytime soon.

“We are more likely to see quiet increases over the next six months, as the drag from commodities prices fades amid a weakening dollar,” he added. “Increasing pressure from rising labor costs will eventually provide impetus for retailers and wholesalers to raise prices, though that dynamic has yet to have meaningful impact.”

Kleinhenz said total retail sales have grown year-over-year every month since November 2009 during the Great Recession, and retail sales as calculated by NRF—which excludes automobiles, gasoline stations and restaurants—have increased year-over-year in all but one month since the beginning of 2010.