Booming Economy in 2018 Means Smart Retailers Will Profit
With tax cuts in place and unemployment at a record low, 2018 is shaping up to be a banner year for the economy.
As economists continue to read the tea leaves and analyze consumer spending, experts are forecasting that the nation’s economy will charge ahead this year and see a healthy 4 percent growth in gross domestic product (GDP).
“I really think we are on a roll,” said Howard Davidowitz, a retail expert who is chairman of Howard Davidowitz & Associates in New York. “The economy is very strong and consumer spending is 70 percent of that.”
Davidowitz is one of the optimists predicting a 4 percent rise in GDP growth while David Shulman, an economist with the UCLA Anderson Forecast, sees a 3.7 percent bump in the nation’s economy. “I think it is going to be a good year for consumers,” the economist noted.
This financial exuberance was reflected in the recent holiday sales figures released by the National Retail Federation. Holiday sales during November and December increased 5.5 percent over the previous year to $691.9 billion, excluding gas stations, auto dealers and restaurants. Growing wages, stronger employment and confidence in the economy were three factors that nudged shoppers to spend, spend and spend. Clothing and accessories stores saw a 2.7 percent uptick in sales over last year.
For decades, retail consultant Britt Beemer has been surveying consumers about their shopping habits, and he hasn’t seen people this buoyant since the Ronald Reagan era of the 1980s. “I have not seen such a rousing, positive attitude by so many people,” he said. “Nearly 31 percent of consumers we talked to said at Christmas that they were making more money than before. Seventy percent said their employers are hiring new people. I talked to one lady in Southern California who had been an executive secretary for 10 years, and she said for the first time she actually saw her CEO smile last week.”
Beemer noted that 10 percent of the people he surveyed said they were thinking of starting their own company, which is way up from the 1.2 percent who said they were contemplating their own venture during the Obama administration. During the Reagan administration, 15 percent to 16 percent of consumers said they were tempted to start out on their own.
Retailers, Beemer said, are going to have an excellent year, but there still will be some store closures as management examines which locations are making money and which are not. “I think both bricks-and-mortar stores and online will do well, but I still think consumers want bargains and discounts,” he said.
Retailers doing well this year will be luxury stores, which are predicted to see a 30 percent to 35 percent jump in sales. Children and teen retailers also will experience healthy activity. “When times were tough, people said they cut back on their spending for children and teens,” Beemer said. “So I think we will see more spending there.”
Because lower- and middle-income consumers will be one sector of the economy that will benefit from the recently enacted tax cuts, UCLA economist Shulman expects discount and bargain stores to be riding the economic rise. “Lower- and moderate-income earners will be better off,” Shulman said. “That will help discount stores and retailers at the lower levels.”
But economists agree there will still be more store closings this year. “Retailers are going to be looking at each store and deciding which stores can operate on a lower growth margin than before. If not, they will close them,” the UCLA economist said.
With U.S. unemployment at only 4.1 percent, employers are finding that it is harder and harder to find good workers. So they are offering higher wages and better benefits. The biggest example of this is Walmart, which last week announced it was raising its minimum wage from $10 an hour to $11 an hour, giving up to $1,000 in bonuses to longtime employees and providing maternity and parental leave for workers. “In a tight labor market, businesses have to act rationally to get people,” Davidowitz said.
The bubbling up of economic cheer is good for retailers, but e-commerce sites also will still be growing at a more rapid pace and cutting into physical stores’ business, which was seen during the holidays. Between October and December, online sales accounted for 60 percent of total sales when excluding gas, auto and food-service businesses.
The Golden State
Busy retailers across the nation meant that the Los Angeles port complex, which receives nearly 40 percent of all cargo containers coming to the United States, saw a record amount of freight arrive.
The Port of Los Angeles saw 9.34 million cargo containers pass through the docks in 2017. That was a 5.5 percent increase over the previous year and a record in the port’s 110-year history. “The cargo volume for 2017 reflects the importance of the Port of Los Angeles not just to the regional economy but the nation,” said John McLaurin, president of the Pacific Merchant Shipping Association.
California’s economy has added to this burst of imports, with the state’s unemployment rate down to 4.6 percent in October, the lowest in decades. The state has been adding jobs at a faster clip than the rest of the nation, but that may slow because it is getting harder to find workers to fill a number of vacant positions.
“California’s job growth has been as high as 3 percent a year, but there will be a slowdown because we have bumped up against limits in the labor force and a short supply of affordable housing,” said Robert Kleinhenz, an economist with Beacon Economics in Los Angeles, who predicts a 1.5 percent growth in jobs this year in California.
Industries that are growing include construction, leisure and hospitality, nonprofits, and consumer services, which include hair and beauty salons and car mechanics, Kleinhenz said.