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NRF Holiday Forecast May Miss Again

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Blogger Barry Ritholtz has written a scathing indictment of the National Retail Federation holiday prediction of 13% sales growth. His article points out that November retail sales were flat or negative at many major retailers, and no retailer saw growth sufficient to drive a 13% sales increase.

Another look at the data confirms that Black Friday sales, while quite robust than in many recent years, did not seem to reflect the trends the NRF was forecasting when paired with November sales results. The NRF made an optimistic holiday prediction based on rising home prices and large increases in consumer confidence seen before the election.

They downplayed the potential impact of the fiscal cliff on holiday spending, as well as unimpressive job growth. Despite that, they also predicted that retailers would add 585,000 to 625,000 seasonal employees this year.

NRF holiday forecasts are based on an economic model that factors in consumer confidence, consumer credit, disposable personal income, and previous monthly retail sales releases. It includes non-store sales results.

The chart below shows the NRF prediction and the actual sales results.

  Predicted Actual
2007 4.0% 4.3%
2008 2.2% -2.8%
2009 -1% 3.6%
2010 2.3% 5.5%
2011 2.8% 4.1%


It’s clear that since the recession the NRF has been significantly incorrect several times. Yet, despite this trend of inaccuracy, many publications us the NRF holiday forecast as the baseline for holiday business reporting. For an alternative measure, if you have the patience, Thompson Reuters tracks actual retail sales results, not surveys or models.

The factors affecting holiday sales during a recession/recovery cycle are too complex to be easily encapsulated in an economic model. 2008, 2009, and 2010 were all shocking years, with eleventh hour changes in sales numbers that made predictions impossible.

But the value of predicting holiday sales, even if it could be done accurately, is dubious. Firms release sales expectations for the holiday quarter or half that are used as a basis for their stock fluctuations during that period. The government collects data on employment and tax revenue that can serve as an accurate proxy for the factors that will shape consumer spending.

Those numbers can be used and trusted. However, a broad index of retail sales guesses is functionally useless — a firm cannot make sound business decisions based on it, and a consumer will likely not shop more or less as a result of it. It’s just one of many popular economic indicators that says nothing, but gives people the impression that the economy is moving in a certain direction.


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