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NRF: Economy Expected to See Fastest Growth in Two Decades

Retail’s key trade group, the National Retail Federation, is forecasting annual retail sales in 2021 to grow between 6.5 and 8.2 percent.

That would represent the highest growth rate since 2004, when the rate rose 6.3 percent, according to Jack Kleinhenz, NRF’s chief economist. At that level, annual retail sales in 2021 could reach between $4.33 trillion and $4.40 trillion. Online sales, which are included in the overall sales tally, are projected to rise between 18 and 23 percent, contributing between $1.14 trillion and $1.19 trillion to the annual total.

“The trajectory of the economy is predicated on the effectiveness of the vaccine and its distribution,” Klenhenz said on Wednesday. That assumption presumes that accelerated growth begins at the mid-year mark. “The economy is expected to see its fastest growth in over two decades,” he added.

In comparison to 2019, where the rate of annual retail sales growth was 3.9 percent, 2020’s sales grew 6.7 percent over 2019 figures to $4.06 trillion, even during the global coronavirus pandemic. Much of that boom was due to contributions from online and other nonstore sales, which saw a 21.9 percent gain to $969.4 billion. NRF figures exclude sales from automobile dealers, gasoline stations and restaurants.

Klenhenz cited healthy macro-economic conditions, such as new home sales up 4.3 percent, for the robust forecast. “The consumer certainly has purchasing power and is willing to spend, and we believe that’s going to be important,” he said. Kleinhenz is estimating that real GDP on an annual basis will be in the 4.5 to 5 percent range. “It will be lower in first quarter, then picking up in the second and third quarters. We’ll see how that all develops,” he said.

A large component of GDP growth is consumer spending, and the chief economist said real personal consumption expenditures could be around a 4.6 percent pace. Adding in inflation expectations, Kleinhenz said nominal growth in consumer spending should be about 6.5 percent. Boosting those projections is an expectation for a pickup in both job and wage growth during 2021. He said the U.S. could average a gain of 220,000 to 300,000 jobs per month during 2021, more so towards the middle of the year and with the pace picking up as the economy gains momentum. He also said that data shows that consumers take one-third of their stimulus checks for spending, one-third for savings and one-third for paying down debt.

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Citing the robust sales during November and December for holiday coming in at an unexpectedly high 8 percent, NRF president and CEO Matthew Shay noted that 2021 began with consumers having a high level of savings and paying down of substantial amounts of debt, bolstered by record high stock valuations, continuing government support and low interest rates.

“The consumer has been extremely resilient throughout the pandemic. And I think we will continue to see both that resilience and retailers behaving in agile, flexible and innovative ways to meet consumer needs, demands and expectations,” Shay said.

And while there’s been a big push by retailers to serve consumers in cities in recent years, only to see residents move to the suburbs during the pandemic, Shay doesn’t think that will shift retailers’ focus.

“I tend to think it’s too early to give up on cities. And I think that we’re going to see people want to return to the core centers of cities,” Shay said. The real challenge over the past year has been how major businesses that anchor urban areas have not been in their offices, which has had a dramatic knock-on effect on the small businesses within the ecosystem, he added. That ecosystem will have to be rebuilt, and that’s an area that still needs support from federal, state and local authorities, Shay said.

In the meantime, many businesses have benefited from the shift to home becoming the center of everything, presenting a challenge as to what may happen to consumer behavior when they have the opportunity to become engaged again in the experience economy and are able to put more disposable income back into services.

“Will they want big houses? Will they want to be back in apartments in the city? I’m still betting that over time, people want to be back in the cities and experience the kind of vibrance that you can only achieve in those kinds of urban centers, but I think it’s too soon to make any pronouncements in the absence of more data,” Shay said.