John Nelson
While several economic indicators bode well for the retail sector, none is more important than housing’s rebound, according to Cassidy Turley’s November U.S. Retail Report.
The National Association of Realtors has reported that home prices have risen in 100 of the 134 metros tracked since the beginning of the year. In Phoenix, for example, home prices have risen 29 percent over the past year.
Rising home values can generate a wealth effect that leads to stronger consumer spending, the report suggests. For every $1 increase in home values, consumer spending typically rises by 5 cents.
Other encouraging signs of a strong 2012 include retail sales. After sagging in the summer, retail sales have risen for three consecutive months through September. Items such as motor vehicles, clothing/accessories, electronics and appliances have all posted steady gains since July. As of today, retail sales are on pace to finish 5.5 percent higher than 2011.
The holiday season is also anticipated to outperform last year, which was very strong in its own right. The National Retail Federation is predicting holiday sales to increase 4.1 percent from last year.
Consumer spending is a result of consumer confidence, which is at its highest level in nearly five years. The Conference Board’s Consumer Confidence Index jumped from 68.4 percent in September to 72.2 percent in October.
INCONSISTENCIES
The upbeat economic data somewhat masks a ho-hum third quarter. Retail vacancy was unchanged from the second quarter at 10.8 percent and rents have also remained relatively flat.
Despite the lackluster fundamentals, low-end and high-end retailers are performing well in the market, but it’s at the expense of the mid-level retailers.
Discount retailers are expanding in the marketplace due to high demand. Family Dollar is opening 500 new stores in 2013, which is comparable to the amount of stores opened during this year. Likewise, high-end retailers are on the move. For example, Whole Foods is set to open 70 new stores in the next two years.
One wild card in predicting the final outcome for retail in 2012 is Hurricane Sandy, which ravaged the Northeast resulting in significant property damages to businesses and residents. The estimated price tag of property damage, lost business and extra living expenses could exceed $50 billion.
WHAT TO EXPECT IN 2013
In 2013, the U.S. economy is faced with immense challenges including the rising federal deficit, tax policies, healthcare and financial regulatory reforms and the fiscal cliff.
The election of President Barack Obama has provided some clarity, but the anxiety felt by businesses are in danger of spreading to the consumer if policymakers don’t reach a consensus on the fiscal cliff swiftly, the report suggests.
One of the most important factors in a recovering economy is job growth, which hasn’t been a beacon as of late. The report states that job growth in the last six months has fallen 50 percent from earlier this year.
On the other side of the coin, cash balances of the Standard & Poor’s 500 are near historic highs of $1.5 trillion, according to JP Morgan. Also, household financials have looked as good as they have since 1993, based on the debt service ratio.
The report concludes that if elected officials can provide transparency and reach a consensus on divisive policies, 2013 could be another strong year in the retail sector.
— John Nelson