Improving Economic Conditions Bode Well For Retail Industry

by Trefis Team
American Eagle Outfitters
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Current economic conditions are on the rise heading into the holiday season, a sign that bodes well for the plagued retail industry. According to the University of Michigan Surveys of Consumers, while the sentiment has remained favorable, it has fallen from the surge in early October, when it reached a level not seen since the start of 2004. The index of consumer sentiment soared to 101.1 in October, from 87.2 back in October of last year, but has fallen to 96.8 in December. Meanwhile, the current economic conditions improved to 115.9 in December, from 113.5 in November, and 111.9 in December last year. Furthermore, retail trade sales were up 0.8% in November when compared to October, and a rise of 6.3% from last year.

Indication Of Future Optimism

The decline in consumer sentiment can be primarily attributed to the uncertainty surrounding the long-term prospects of the economy with the impact of the changes in the tax structure. On a more positive note, there are expectations of income gains. According to the survey, the anticipation of higher incomes has “slowly improved during the past year.” Moreover, with unemployment levels at their lowest levels for a long time and consumer confidence on a high, shoppers can be expected to spend more this holiday season. Deloitte has estimated that holiday sales this year will increase by 4% to 4.5% when compared with last year, with online sales capturing a majority of the total shopping at 51%. This would result in an 18% to 21% rise in e-commerce sales. With 79% of the respondents stating that they plan to expend as much or more versus last year’s last holiday season, the retailers may get a windfall upwards of $1 trillion this holiday season. Meanwhile, a forecast provided by the National Retail Federation has pegged the increase in holiday sales to between 3.6% and 4%. This would imply an improved growth rate versus last year, when sales grew 3.6%, while the five year average has been 3.5%.

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