NRF Revises US Sales Forecast, Warns Spending Bound to Slow Down

The National Retail Federation (NRF) has revised its 2005 sales forecast warning that consumers cannot indefinitely keep up high levels of spending. The NRF said based on the inclusion of new merchandise categories, it predicts that retail industry sales (which exclude motor vehicles, gas stations, and restaurants) will increase 4.8 percent from last year.

In its quarterly Retail Sales Outlook Report, the NRF cites tough comparisons and a slowing economy as contributors to weaker growth than last year. Retail industry sales grew 7.0 percent in 2004, the highest growth since 1999.

"The indomitable consumer has kept on spending in spite of high levels of debt and extremely low savings, but this pace cannot continue much longer," said NRF Chief Economist Rosalind Wells. "In addition to tough comparisons, which will plague the retail industry for most of the year, consumers will be stretched thin from rising interest rates, high energy prices, and modest gains in employment and income."

According to the Retail Sales Outlook, several retail categories are poised for strong growth in 2005, including luxury retailers. Retailers which may see falls in sales include discounters, whose shoppers will be most affected by higher gas prices, and department stores, who are still struggling to define themselves.

First quarter retail industry sales increased 5.4 percent. The NRF's forecast for the remainder of the year is for gains of 5.0 percent in both the second and third quarters and a gain of 4.1 percent in the fourth quarter.

NRF had previously forecast a 3.5 percent rise in GAFS sales, which excluded sales at food and beverage stores, building materials and garden equipment stores, health and personal care stores, and miscellaneous retailers including florists and gift shops. The two forecasts represent different categories and are therefore not comparable.

One bright light in the economy appears to be developments in business investments, which have increased substantially. Many companies, posting healthy profits and high levels of cash flow, are making large productivity-enhancing investments, and the NRF expects business capital spending to continue to rise this year.