Despite blustery headwinds in the form of supply chain disruptions, inflation and the emergence of a new Covid variant, the National Retail Federation (NRF) has offered up an optimistic projection earlier this month for retail’s performance over the holiday season. But will that exuberance extend into the year ahead?
According to the group’s chief economist, Jack Kleinhenz, shoppers are poised to exceed NRF’s forecast of record spending this holiday, which indicated that November and December sales could grow by between 8.5 percent and 10.5 percent from the same period in 2020. After reviewing sales results from October, the group’s revised projection indicates that holiday retail sales could actually grow as much as 11.5 percent from the year-ago period.
“Now that we’re in December, the holiday shopping season is nearing the finish line,” he said. “The question is how have factors ranging from economic indicators to the twists of the Covid-19 pandemic affected the season so far, and what role will they play in the weeks that remain?”
According to the economist, there’s “no crystal ball to provide a definitive answer,” but NRF’s latest insights paint an encouraging picture for brands and retailers, as consumers “remain in solid financial shape and do not appear to be stretched” by gift-giving expenses. Because holiday steals and deals begin earlier each year, Thanksgiving weekend “now helps to mark off the holiday season rather than serving as the kickoff it once was,” providing a solid indication of what shopper behavior will look like through the last months of the year. “Consumers and retailers have both revised their playbooks and broken with previous traditions,” Kleinhenz said.
Related Stories
Concerns about Covid persist, of course—and are now underscored by the emergence of the Omicron variant. Kleinhenz characterized the development as “the latest wildcard raising uncertainty around the economic outlook,” but noted that he believes Omicron’s ultimate influence on the economy is yet to be determined.
And while NRF is bullish on consumer spending, retail’s official holiday results are also yet to be seen. “The economy has a lot riding on consumers, and it needs the consumer to keep growing,” Kleinhenz said. NRF’s calculation of overall shopper spend (beyond just retail sales) in October showed a 1.3 percent increase over September—the largest monthly uptick since March. In spite of the price hikes that have accompanied inflation, there’s been “no evidence of a pullback” on the part of shoppers,” he added.
Will holiday cheer extend into the new year?
These months of merriment may not be a bellwether for future economic trends, some experts say. According to the National Association for Business Economics’ 2022 outlook survey, released earlier this month, inflation is likely to continue to balloon well after consumers ring in the new year.
The data represents a consensus macroeconomic projection from a panel of 48 professional forecasters, including experts from Bloomberg, Morgan Stanley, the Federal Reserve Bank of Atlanta, SRR Consulting, CBE, IHS Markit, as well as NRF’s Kleinhenz.
“NABE Outlook survey panelists have ramped up their expectations for inflation significantly since September,” Julia Coronado, NABE vice president and founder and president of MacroPolicy Perspectives, wrote in the group’s report. The core consumer price index, which excludes food and energy costs, is now expected to rise 6 percent in Q4 of 2021 from the same period the year prior. The estimate revises a September forecast, which estimated that prices would rise by 5.1 percent over the same period, she said.
The majority (71 percent) of NABE’s panel said they anticipate that the Federal Reserve’s preferred gauge of inflation—the change in the core PCE price index—”will not cool down to or below the Fed’s target of 2 percent year-over-year until the second half of 2023 or later,” Coronado added.
Inflationary pressures stem directly from challenges to the consumer goods supply chain, NABE experts largely agreed. Eighty-seven percent cited these logistical bottlenecks as a catalyst for rising prices, while 76 percent fingered the strong demand for goods and services for the phenomenon. Sixty-nine percent listed higher wages as a key driver behind elevated prices.
Looking ahead to the next three years, NABE’s stable of experts believe that these factors will continue to keep inflation above 2 percent. The group pointed to the easing of supply chain tensions, increased energy production, fewer economic stimulus efforts and heightened production of goods like semiconductors as factors that could potentially pop the inflationary bubble.
When it comes to untangling the consumer goods supply chain, some are optimistic that improvement is imminent. More than one-third (37 percent) of respondents believe that an easing of pressures has already begun, or will happen during the first quarter of the new year, while 43 percent believe disruptions will abate during Q2 of 2022.
Labor shortages have also posed problems for retail and the consumer goods supply chain throughout 2021, contributing to the widespread wage increases that have contributed to inflation. The labor force participation rate (LFPR) has declined for a confluence of reasons, experts said, pointing to increases in retirement (50 percent), Covid-related concerns (23 percent) and caregiving responsibilities or lack of daycare (18 percent) as the primary drivers behind the high unemployment rate, which was 4.2 percent at the end of November, according to the Bureau of Labor Statistics.
Respondents are divided on whether LFPR will ever return to the pre-pandemic level of 63.3 percent seen in February 2020. Half said they anticipate the LFPR will return, but only 5 percent believe that will happen by the end of 2022. One-quarter of the panel anticipates that full LFPR recovery will stretch beyond 2024. Still, respondents see unemployment declining steadily throughout the new year, reaching 3.8 percent in the fourth quarter.
More than half (58 percent) of NABE experts believe that the U.S. will reach its full employment threshold within the next year, while 29 percent pointed to 2023 as a more likely point of resolution. Eleven percent expect full employment to resume in 2024, or even later.
These circumstances have led to NABE respondents downgrading their projections for economic growth in 2021 for the second consecutive survey since May. The median forecast for change in inflation-adjusted gross domestic product (GDP) between Q4 2020 and the same period in 2021 is 4.9 percent, down from a September estimate of 5.6 percent. On an annual-average basis, respondents expect real GDP to increase 5.5 this year and slow to a 3.9 percent growth rate in 2022.