NRF Holiday Forecast at Risk

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For the last 25 years, the National Retail Federation (NRF) has kicked off the holiday shopping season in early October with its forecast for holiday retail spending, covering the critical November-December retail sales. This year, however, it waited until the end of November to make its prediction, and as per usual, it was exceedingly optimistic.

NRF’s Retail View

According to NRF, retail sales will rise between 3.6 percent to 5.2 percent this year for the last two months of the year, excluding automobile dealers, gasoline stations and restaurants.

Explaining the delay in its 2020 forecast, NRF’s chief economist Jack Kleinhenz described it in terms that most of us have experienced over the past nine months. Compiling an economic forecast for 2020 is like putting together a jigsaw puzzle with some of the pieces missing.

“We are waiting for new data and are still assembling puzzle pieces for the 2020 holiday season,” he said. “I am cautiously optimistic about the fourth quarter in terms of the economy and consumer spending, but the outlook is clouded with uncertainty pivoting on Covid-19 infection rates.”

[callout]The more affluent consumers, who make up about one-third of all U.S. households, but account for about half of all consumer spending, haven’t taken a hit to their incomes like the middle and lower-income folks.[/callout]

The more affluent consumers, who make up about one-third of all U.S. households, but account for about half of all consumer spending, haven’t taken a hit to their incomes like the middle and lower-income folks.

The cynic in me said that the NRF had all the pieces it needed well before October and was only delayed figuring out how to spin it in the best light. Apparently, the NRF’s PR team worked overtime to get the right top spin on the forecast.

“Given the pandemic, there is uncertainty about consumers’ willingness to spend, but with the economy improving most have the ability to spend,” Kleinhenz said in the November 23 announcement. “Consumers have experienced a difficult year but will likely spend more than anyone would have expected just a few months ago. There are risks to the economy if the virus continues to spread, but as long as consumers remain confident and upbeat, they will spend for the holiday season.”

NRF Gets It More Right Than Wrong

Historically, the NRF does a pretty good job in its holiday predictions, sometimes with the results coming within a decimal point or two of its forecasts and sometimes Americans go overboard and spend more.

But there have been misses, like in 2018 when it predicted holiday sales to rise between 4.3 to 4.8 percent, and they came in only at a 2.1 percent increase. In 2019, NRF made up for that error when sales fell right in line with its 3.8 to 4.2 percent prediction, rising 4.1 percent.

This year, however, I believe the NRF will get it spectacularly wrong, like it did in 2008. At the time it predicted a 2.2 percent increase, only to see the actuals falling by 4.8 percent. I think we are headed for a similar disappointment this year, hopefully not a decline, but it could happen.

Can They Keep It Up?

What has to happen to achieve NRF’s expectations? American consumers must continue their heady pace of consumption that we’ve seen over the last two months. According to the latest data from the Census Bureau, year-over-year September retail sales rose 5.9 percent and October slowed a bit, only rising 5.7 percent, which includes automobiles, gasoline stations, and food services.

Over the last two months, retail sales have continued to grow in strong double-digits for online retailers, automobile dealers, building materials, sporting goods/hobby, and food and beverage retail.

But clothing, clothing accessories and department stores have experienced near equal declines, with the pace of descent picking up speed in October after a stronger than expected back-to-school season. Clothing and accessory stores dropped 9.2 percent in September but were down 12.6 percent in October.  Department stores were down 7.7 percent in September and off 11.9 percent in October.

More problematic for achieving NRF’s forecasts is the plethora of research studies that find people expect to spend less on holiday gifts this year. Further, they are not planning parties or get-togethers, meaning less money will be spent on food and drinks. And they also report they have front-loaded the little holiday shopping they will do this year, so the past two good months for many retailers may begin to trail off. And the dark cloud of the Covid pandemic hangs over the holiday season with the CDC expecting the infection rate to continue to grow. For many families, shopping will be an afterthought.

Rich Keep Getting Richer, Leaving Everyone Else in the Dust

What also needs to be factored into the mix is that the more affluent consumers who make up about one-third of all U.S. households but account for about half of all consumer spending, haven’t taken a hit to their incomes like the middle and lower-income folks.

Further, their ample budgets usually devoted to travel, dining and other leisure activities haven’t been spent, giving them more confidence to indulge in retail spending.

But that is definitely not the case with the two-thirds of U.S. households – 85 million out of the total 128.5 million – who have incomes under $100k. They got a stimulus package lifeline that helped them and subsequently retailers during the third quarter. But that money’s been spent, and they are going into a holiday season struggling to make ends meet, even to put food on their tables.

Beltway Myopia

While the NRF sits securely in its Washington, DC cocoon – and I know Jack Kleinhenz is one of the leading and most respected economists around – an untold number of Americans are in crisis. One of the nation’s leading food banks, Feeding America, estimates 50 million Americans, including 17 million children, experienced food insecurity this year, up from 35 million in 2019.

And recent news has brought us disturbing pictures of the long lines at food banks and churches donating Thanksgiving meals to those in need.

“We\’re especially concerned about the holidays and the winter ahead. About 40 percent of the people who are turning to us for help have never before relied upon the charitable food system,” said Feeding America’s CEO Claire Babineaux-Fontenot.

This is a reality that the NRF’s sunny retail forecast missed. The strong household balance sheets, strong stock market and rising home values cited by Kleinhenz as proof-positive that the holidays will be strong for retailers only affect a small portion of American households. But if 15 percent of Americans don’t have enough food to eat, how can they even be thinking about holiday gift giving?



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