The Washington-based National Retail Federation said Monday that total retail sales are slated to grow 3.5 percent, falling below last year's estimated 4.0 percent pace and marking the weakest growth since 2002 when retail sales climbed 3.0 percent. The retail sales figure excludes automobiles, gas stations and restaurants. The final 2007 figure will not be known until Tuesday when the Commerce Department is slated to report December's total retail sales figures.
"The consumer is full of anxiety," said Rosalind Wells, chief economist at NRF, noting a number of financial pressures that are weighing on shoppers, from higher gas costs to tightening credit.
However, while a growing number of industry leaders, including economists from Goldman Sachs, have recently sent off alarm bells that the economy is heading into a recession, Wells stopped short of echoing those sentiments.
"We know one thing. We are heading for slower growth," she said. "Whether or not it tips into recession, we won't know for sure for a while."
Wells expects sluggish sales in the first half of the year to eventually give way to strong sales in the third and fourth quarter as she believes that a move by the Federal Reserve to further cut interest rates will help revive the economy. Federal Reserve Chairman Ben Bernanke, responding to growing signs of an economic slowdown, said Thursday the central bank is ready to lower interest rates again. The Fed lowered its key rate three times last year.
A growing concern for retailers - and, in turn, their suppliers - is the weakening of the job market, which had helped prop up spending for most of 2007. On Jan. 4, the Labor Department's jobs report showed that hiring practically stalled in December, driving the nation's unemployment rate up to a two-year high of 5 percent.
Such financial strain was reflected in major stores' dismal December same-store sales reports, which showed the weakest holiday season since 2002.
Same-store sales are sales at stores opened at least a year and is considered a key indicator of a retailer's health. Many merchants who reported sales figures Thursday failed to meet already lowered sales projections, resulting in a number of retailers reducing earnings outlooks for the fourth quarter
The hardest hit were sellers of apparel as shoppers cut back on discretionary items. But even high-end stores like Saks Inc., which operates Saks Fifth Avenue, are also feeling some financial pressure. Saks noted in its release Thursday that customers have continued to shift more of their spending to sales events.
On Friday, upscale jewelry retailer Tiffany & Co. cut its 2007 profit projection as it reported a 2 percent decline in same-store sales during the holiday period.
Retailers' big fear is that consumer spending, which has slowed over the past two years, will come to a screeching halt. Monique Rader, from Milwaukee, who recently was seen shopping at an Old Navy store, said she plans to pare down her spending even more this year, especially on things like clothes amid higher gas prices and other big expenses.
"I will cut it down a lot because we're trying to buy a house and everything is costing so much more now," she said.
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