Retailers are pinning their hopes on an unlikely source this year: the Fed. With consumers squeezed by soaring fuel prices and a slowdown in housing, retailers believe the Federal Reserve will play a major role in determining how quickly consumers bounce back (and resume spending) in 2006.
As Ben Bernanke takes over from Alan Greenspan, the National Retail Federation (NRF) expects the Fed's policy of vigilance toward inflation to continue. Yet the retail group appears to be guardedly optimistic that the Fed will see no need to raise interest rates. "In the near term, underlying inflationary pressures appear to be under control," the NRF says. "Productivity is still quite high and, as a result, unit labor costs are low. These trends should give the Fed some peace of mind."
Meanwhile, the NRF remains cautious about the 2006 retail outlook. In its annual forecast, it predicted that retail sales (which exclude automobiles, gas stations and restaurants) would increase an anemic 4.7 percent (down from last year's robust 6.1 percent).
The outlook varies markedly by sector. For example, the NRF says certain types of retailers will continue to see solid growth. Clothing and accessory stores (which includes shoes and jewelry), food and beverage retailers, and health and personal care retailers can expect sales to grow by 4.0 or 5.0 percent, according to the forecast. Electronics retailers will fare well, too, thanks to what the NRF calls "product excitement" and attractive pricing.
The news is not as good for building material and furniture stores, however. As housing softens, their sales are expected to slump.