Consumer confidence key as retailers wait for economy to bounce back
Despite deep discounting during the holiday season that saw few retail operations come out with positive earnings, a national retail organization is predicting a turnaround in the industry by the end of the first quarter or the beginning of the second quarter of 2002.
"The fact is, we’ve been in the recession since March 2001, so it’s only natural for us to be coming out of it at this period of time that we’re projecting," said Scott Krugman, spokesman for the National Retail Federation. Consumer spending represents two-thirds of the Gross Domestic Product, a key economic indicator.
Krugman noted that cuts enacted by the Federal Reserve in January 2001 were just beginning to take effect on the economy when the terrorist attacks of Sept. 11 occurred, thus setting back any positive influence in the economy.
"There’s always going to be at least a three-month lag between the interest rate cuts and the effect on the economy," Krugman said. "We’re hopeful that we’re going to be feeling those effects towards the end of the first quarter."
And, Krugman adds, "This holiday season, it looks like we’re going to have positive increases in retail sales, probably in the neighborhood of 2.5%. Not spectacular, but something given the current economic landscape."
The most encouraging news for retailers is that the American people, despite unemployment levels at 5.8% in December, have more discretionary income than some analysts originally predicted. People have been busy refinancing mortgages, paying down debt and benefiting from lower gas prices, all of which leaves them with more money in their wallets, says Krugman.
"Consumers are showing that they’re still able to spend," Krugman said. "Retailers are giving them the incentives by giving them bargains, giving them the reason to come out and spend. I think consumers are showing that they do have the discretionary income to spend. And that’s a positive sign for the economy in the future."
Jan. 18, 2002 Small Business Times, Milwaukee
