--Retail trade group projects slowest sales growth since
2010
--Tax increases, fiscal discord in Washington hurting consumer
sentiment
--Second half expected to improve from difficult first half
(Updates with more comments from trade group officials, further
details of outlook, context throughout)
By Joan E. Solsman
U.S. retail sales are expected to rise 3.4% this year, the
slowest rate since 2010, as consumers lower spending because of a
tax bite to their paychecks and bickering among policymakers over
fiscal matters, according to the industry's biggest trade
group.
The National Retail Federation's projection for 2013 is below
its preliminary 4.2% growth rate for 2012 and the 5.8% rate in
2011. It expects many of the issues that affected retail sales
during a lackluster holiday season--worries about the economy's
direction and increasing online competition--to persist early this
year. The forecast excludes automobiles, gasoline stations and
restaurants.
Debates about the health of the economy and fiscal policy are
"having a real impact on household budgets and consumer spending,"
said Matthew Shay, chief executive of the trade organization.
He called on Congress and President Barack Obama's
administration to show leadership and take concrete actions
"enlarging the size of the economic pie, not just having a
continuing debate about dividing up the pie in different ways."
In another holiday trend it expects to continue, the NRF also
predicted online sales to continue growing robustly, predicting an
increase in such sales between 9% and 12% in 2013. It expects
ecommerce sales to represent approximately 18% of total sales in
2013. By comparison, the proportion in 2010 was about 14%.
The federation expects sales improvements in the second half if
job creation and income growth improve. Strengthening in the
housing sector and modest inflation--including lower energy
prices--are among the tailwinds it expects to help retail
sales.
But NRF chief economist Jack Kleinhenz said ongoing pressure
from slower income growth and higher taxes will hamper spending in
the first half of the year. He attributed much of the spending
reduction to a 2% payroll tax increase and additional provisions
for the Affordable Care Act.
The sales projection came as merchants move past an
underwhelming end of the year, the busiest time for retail. Brisk
sales early in the holiday season later gave way to a December lull
marked by sharp discounts late in the game, forcing large retailers
such as Target Corp. (TGT) and Macy's Inc. (M) to aim their
financial targets lower.
On the other hand, the NRF's caution also comes as investors
have driven the Dow Jones Industrial Average and the Standard &
Poor's 500-share index to multiyear highs recently.
Mr. Shay said performance of retailers may reflect how their
customer bases experience the economic conditions, with some
consumers digesting income tax hits with relative confidence
because of market strength, while a majority of consumers in a
lower economic bracket spend very differently.
The trade group chief said it was still too early to tell the
effect of tax increases on consumers' willingness to shop, but he
added that the NRF "can safely predict that many people are going
to be shopping for price more often and there may be some trading
down."
The overall stock strength even in subpar economic growth
underscores how companies, including retailers, have learned to
perform more effectively, according to the group's economist, Mr.
Kleinhenz. The key uncertainty is how they increase top-line sales,
he said.
Investors may get a clearer picture of how retailers are seeing
taxes and other headwinds affect customers next month as their
fiscal fourth-quarter earnings begin rolling in en masse. Wal-Mart
Stores Inc. (WMT) is expected to report earnings Feb. 21.
Early on, however, results have been disappointing.
Jos. A. Bank Clothiers Inc. (JOSB) shares sank 18% Monday on a
bleak profit warning for its fiscal year ending this week, with the
menswear merchant blaming Hurricane Sandy and unseasonably warm
weather while also admitting some holiday offerings weren't well
received.
The week before, shares in luxury handbag seller Coach Inc.
(COH) also sold off on unexpectedly weak earnings in its fiscal
second quarter, as it insulated brand prestige to the detriment of
North American sales during the holidays.
Write to Joan E. Solsman at joan.solsman@dowjones.com.