Market Overview

National Retail Federation Upgrades 2018 Economic Forecast But Says Tariffs Remain a Threat


The National Retail Federation today increased its retail sales forecast
for 2018, saying sales are expected to grow more than previously
predicted thanks to tax reform and other positive economic inputs but
warning that tariffs threaten to dampen consumer confidence.

NRF now expects 2018 retail sales to increase at a minimum of 4.5
percent over 2017 rather than the 3.8 to 4.4 percent range forecast
earlier this year
. The numbers exclude automobiles, gasoline
stations and restaurants.

"Higher wages, gains in disposable income, a strong job market and
record-high household net worth have all set the stage for very robust
growth in the nation's consumer-driven economy," NRF President and CEO
Matthew Shay said. "Tax reform and economic stimulus have created jobs
and put more money in consumers' pockets, and retailers are seeing it in
their bottom line. We knew this would be a good year, but the first half
turned out to be even better than expected. However, a tremendous amount
of uncertainty about the second half remains. It could be a banner year
for the industry, or we could keep chugging along at the current rate."

Retail sales in the first half of 2018 grew 4.8 percent year-over-year
and have been up 4.4 percent year-over-year in the most recent
three-month moving average. NRF now expects gross domestic product for
the year to grow at the higher end of the 2.5 to 3 percent range it
forecast earlier.

"We don't want to see these economic gains derailed by protectionist
trade policy," Shay said. "With retailers ramping up imports and
stocking their warehouses before most of the proposed tariffs will take
effect, an immediate impact on prices on consumer goods is unlikely, but
that won't last for long. And just the mere talk of tariffs negatively
impacts consumer and business confidence, leading to a decline in
spending. It's time to replace tariffs and talk of trade wars with
diplomacy and policies that strengthen recent gains, not kill them."

Tariffs of 25 percent on $34 billion worth of Chinese goods took
effect in July
, and are scheduled to take effect this month on
another $16 billion, but both lists include a relatively low number of
consumer products. Another
round of tariffs on $200 billion in goods from China
that would
include a broader array of consumer items is currently under
consideration and is expected to be finalized in September. Imports,
meanwhile, have been at record
levels this summer
as retailers bring merchandise into the country
before the tariffs can take effect, according to NRF's Global Port
Tracker report.

"There are many factors that can impact our forecast, but our overall
outlook is optimistic," NRF Chief Economist Jack Kleinhenz said.
"Spending was weaker than expected at the beginning of the first quarter
but has grown more rapidly since then and we continue to anticipate
strong sales during the second half of 2018."

"Despite this upgrade in our forecast, uncertainty surrounding the trade
war and higher-than-expected inflation due in part to increased oil
prices could make consumers cautious during the fall season," Kleinhenz

In addition to expectations for this year's spending, Kleinhenz said the
revised forecast takes into account government revisions to retail
sales, personal income and consumption numbers from 2016 and 2017 that
affect year-to-year comparisons.

NRF is continuing to watch economic developments closely and will
evaluate any changes to its forecast as necessary. If needed, the next
update to the forecast will come as part of NRF's annual holiday
forecast in October.

Kleinhenz said total retail sales have grown year-over-year every month
since November 2009, and retail sales as calculated by NRF — which
excludes automobiles, gasoline stations and restaurants — have increased
year-over-year in all but three months since the beginning of 2010.

About NRF

The National Retail Federation is the world's largest retail trade
association. Based in Washington, D.C., NRF represents discount and
department stores, home goods and specialty stores, Main Street
merchants, grocers, wholesalers, chain restaurants and internet
retailers from the United States and more than 45 countries. Retail is
the nation's largest private-sector employer, supporting one in four
U.S. jobs — 42 million working Americans. Contributing $2.6 trillion to
annual GDP, retail is a daily barometer for the nation's economy.


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