NRF Forecasts 3.5% Growth in 2005 Retail Sales; Tough Comparisons, Subdued Spending Produce Softer Picture.

NEW YORK -- Consumers will prop up the economy again this year, though they could eventually become tapped out. The National Retail Federation (NRF) released its 2005 forecast today, predicting that GAFS sales (general merchandise stores, apparel stores, furniture and home furnishings stores, electronics and appliances stores, and sporting goods, hobby, book and music stores) will increase 3.5 percent from last year. In its quarterly Retail Sales Outlook Report, released this morning at the NRF Convention & EXPO, NRF cites tough comparisons and lack of economic stimulus as the reasoning behind its guarded forecast.

For starters, strong comparisons will make this year more difficult for growth, said NRF. Last year GAFS sales soared 9.9 percent in the first quarter, which will make first quarter growth this year hard to achieve. This year, due to tough comparisons, NRF is predicting growth of 3.7 percent for the first quarter.

NRF's retail sales forecast is restrained this year for a variety of other reasons. "This year, consumers will be under increased financial pressure due to higher energy costs and slow wage growth," said NRF Chief Economist Rosalind Wells. "Additionally, past stimuli provided by tax cuts and very low interest rates will no longer be there to boost consumer spending."

The labor market will be a telling factor in the level of growth retailers will experience this year. "The consumer has been remarkable in shouldering this economic expansion, but now something has got to give," said Wells. "The labor market will continue to expand this year, though our concern is that modest employment growth will lead to modest income growth, which will put a financial strain on consumers."

The luxury sector is expected to thrive this year because high-income families are less affected by slow income growth and higher energy prices. In addition, said Wells, the weaker dollar is increasing the demand for luxury purchases by tourists.

Discounters, on the other hand, will continue to be challenged as their core consumers are most affected by higher energy costs and slow income growth. Also, as the housing market softens, the furniture and home furnishings sector could begin to experience slower growth.

GAFS sales grew 6.7 percent in 2004, the highest retail sales growth since 1999.

NRF TO REVISE RETAIL SALES CATEGORIES

Starting this month, NRF will broaden the retail categories it tracks, adding food and beverage stores, building materials and garden equipment stores, health and personal care stores, and miscellaneous retailers including florists and gift shops. NRF will release a revised historical retail analysis and forecast at the beginning of the second quarter.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet and independent stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees - about one in five American workers - and 2004 sales of $4.1 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com.