Analysts Scratch Their Heads About the Missed Holiday Sales Forecast

Experts were wondering how the National Retail Federation could have been so wrong about its holiday sales forecast in late 2018.

The trade group had predicted a robust increase of 4.3 percent to 4.8 percent over the previous year. Instead, sales only grew 2.9 percent during the crucial business period where some retailers account for up to 30 percent of their annual sales.

After the numbers came in, economists and retail analysts began reevaluating the results from the holiday season and asking if this was a sign the economy is shifting into low gear.

One of those included Jack Kleinhenz, the chief economist at the NRF. But he considered spending in December an anomaly. “We had a strong October and November. The December numbers didn’t seem to connect,” he said. “It’s hard to believe that consumer spending collapsed or has been collapsing.”

He said the economy in 2019 is expected to slow down but will still be healthy.

David Shulman, a senior economist with the UCLA Anderson Forecast, agreed. He said the business school’s current forecast maintains that the U.S. and California economies will grow moderately this year and next.

He predicted that the disappointing holiday 2018 numbers will be revised because the NRF gets its data from the U.S. Census Bureau. The bureau’s economists may have made errors because they were slammed with a tidal wave of information after the recent 35-day government shutdown ending Jan. 25. The announcement of holiday business results was delayed because of the shutdown, which was the longest government closure in U.S. history.

“The numbers made no sense,” Shulman said of the data released by the U.S. Census Bureau. One of America’s dominant retailers, Amazon, reported that its holiday 2018 business broke records with fourth-quarter sales increasing 20 percent to $72.4 billion.

If the entire economy were slowing down, there is no reason why Amazon would have enjoyed good business during the holiday and others didn’t, Shulman reasoned. “We’ll find out more when retailers start releasing numbers for the fourth fiscal quarter,” he said.

The U.S. Census Bureau numbers also seem to be in conflict with holiday sales results announced by Mastercard SpendingPulse, a division of the Mastercard payments network. Its reports are based on data from Mastercard payments. On Dec. 26, Mastercard SpendingPulse announced that U.S. retail sales grew 5.1 percent during the holiday season.

However, holiday business may more accurately describe changes in the way American consumers shop, said Jeff Van Sinderen, a retail analyst with B. Riley FBR. Even though foot traffic at many malls and stores dropped during the holiday, it doesn’t mean that people were not shopping. Rather, ongoing consumer trends, such as shopping through digital commerce channels such as e-commerce and mobile phones, accelerated this past season.

“Omni-channel and e-commerce have had a bigger influence because it is easy and convenient. The shift to mobile is enormous,” Van Sinderen said. “Bricks-and-mortar suffered. Bricks-and-mortar will continue though. It’s playing a different role. The death of bricks-and-mortar has been called prematurely.”

Part of what hurt bricks-and-mortar commerce was the long lull between the heavy shopping days of Black Friday weekend and the 10 days before Christmas. Van Sinderen said the lull was more pronounced at bricks-and-mortar stores compared to other retail channels during the holiday season. “You just can’t overcome that at the end of the day. It was too deep. It was too long,” he said.

The reports of soft business were a surprise. The 2018 holiday season started with a robust outlook. But it may have been upended by turmoil in politics and the stock markets as well as the severely cold weather in the Midwest. “Severe weather and turmoil hit at the same time,” Van Sinderen said.

“There was a lot of uncertainty floating around in December, right during the peak for holiday shopping,” he said. “Whether it was concern for trade and tariffs and the stock market in decline, all of this stuff going on made consumers a little less confident. Not everything came up roses in Q4 and the holiday.”

U.S. consumer confidence dropped in December and in January, according to The Conference Board’s Consumer Confidence Survey, which was released on Jan. 29. But Lynn Franco of the Conference Board said that economic conditions remain good.

“Shock events such as government shutdowns tend to have sharp but temporary impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months,” she said.