Monthly Economic Review: October 2018

The calendar is racing to the 2018 holidays.
Monthly Economic Review: October 2018

It’s that time of year again, as retailers and shoppers gear up for the holiday shopping season. Even before Halloween’s ghosts and goblins made their annual visit, a fair amount of holiday advertising and promotions had appeared in October. The numbers over the last few months have been positive, and the steady momentum of the economy should bring retailers a strong holiday season. NRF expects holiday sales to increase between 4.3 and 4.8 percent over 2017. Total spending is expected to range from $717.45 billion to $720.89 billion. That forecast falls within our annual sales forecast range of at least a 4.5 percent increase over 2017 and is above the five-year holiday sales growth average of 3.9 percent. Holiday sales were exceptional in 2017, totaling $687.87 billion, a 5.3 percent increase over the year before and the largest increase since before the Great Recession.

What does the consumer landscape look like going into the holiday season? The current economy is in great shape, very similar to last year, and strong consumer dynamics make for a healthy holiday season. The economy has created an average of 208,000 net new jobs per month this year, faster than the pace in 2017.  Job growth not only has been solid; it also has been broad-based. The unemployment rate in September fell to 3.7 percent, its lowest level since December 1969. Disposable personal income (not adjusted for inflation) is up 5.3 percent on a three-month moving average compared with the same period a year ago. Average monthly hourly earnings for September increased 2.8 percent year-over-year.

Consumers remain optimistic about their economic prospects. The Conference Board’s Consumer Confidence Index measured 138.4 in September, the best in 18 years. The University of Michigan Index of Consumer Sentiment finished September at 100.1, 3.9 points better than August. A solid outlook is also apparent in the Conference Board’s Leading Economic index, which climbed 0.5 percent in September and indicates continued robust growth in economic activity through the fourth quarter. The National Federation of Independent Business’s Small Business Optimism Index (which includes one in five retailers) fell from August’s record-high 108.8 to 107.9 in September, but the level was still the third-highest in the history of the survey and supports NRF’s forecast for a very favorable holiday season.

While the economic data point to a solid holiday season, retailers — like most U.S. industries — are facing a tight labor market. With retail unemployment at a steady 4.4 percent for the last several months, retailers are aggressively trying to hire. According to the Bureau of Labor Statistics, a record monthly level of 768,000 retail openings were recorded through the end of August; 815,000 positions were filled in the same month, also a monthly record. The hiring included seasonal, part-time and full-time positions and was not limited to sales associates. Retailers are also looking to fill a wide range of jobs that do not get counted as “retail” by BLS, including office and administrative positions along with transportation and logistics jobs. To attract all of these candidates, retailers are offering competitive wages and perks including flexible hours, bonuses, contributions to 401K plans, increased employee discounts for purchases, training, health insurance and tuition reimbursement. In the months of November and December, NRF expects retailers will hire between 585,000 and 650,000 workers, up from 582,500 a year ago.

Inflation continues to edge up, but price pressures are not showing the markings of a worrisome intensification, and the outlook for future inflation remains modest. Gasoline prices were up nearly 40 cents a gallon in the middle of October from last year but are not a major concern at this time. The Consumer Price Index was up 2.3 percent year-over-year in September, compared with 2.7 percent in August. Excluding food and energy, core CPI was up 2.2 percent year‐over‐year, unchanged from August. In general, inflation is showing up in the purchases of services but not in the goods sector, so holiday season prices should be either be the same or down compared with last year. While the United States is in the middle of a trade war, recent tariffs on imports should not be an issue this holiday season. Many retailers spent months preparing for the holiday season by importing record amounts of merchandise before the latest round of tariffs kicked in, allowing them to stay competitive with holiday pricing.

Download this month’s report, which includes the following charts and highlights:

  • Consumer sentiment
  • Holiday sales
  • Job openings and hires
  • Private payrolls
  • Consumer Price Index
  • Income and spending
  • Leading Economic Index
  • Consumer credit