Retail Sales Growth Begins to Falter

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The National Retail Federation could hardly have been more optimistic over the course of the holiday season. It raised its forecasts for November and December substantially in early December. The thrill has faded, though. The NRF now expects retail sales to be only 3.4% higher this year. That rate is not enough to create a foundation for GDP growth.

The NRF claims that the housing problem will be the largest drag on consumer activity. Some economists believe that the effects of the home market collapse will be “decoupled” from consumer activity this year. That is, people have come to accept the drop in the value of their homes and will no longer allow that problem to drive their consumer behavior, these experts say. The retail association now says that is not so.

The NRF forecast is a reminder that the consumer may not be able to forget the housing problem. Perhaps that is because home prices have not stabilized. There is still a threat that home price reductions, which have averaged more than a third nationally since 2006, could get even worse this year and next.

Consumer activity remains two-thirds of GDP. The national economy cannot grow much without a consumer who is willing to shop. Today’s consumer apparently is not.

Douglas A. McIntyre