By Anne D'Innocenzio
NEW YORK (AP) -- The nation's largest retail trade group expects a solid 3.4 percent increase in sales this year, below last year's 4.7 percent increase as job woes weigh on shoppers.
Sales should reach $2.53 trillion in 2012, up from last year's $2.45 trillion, boosted in part by higher prices across all goods, according to a report Monday from the National Retail Federation.
The 3.4 percent bump would still outpace the 10-year annual average increase of almost 3.1 percent and would also mark a third consecutive year of recovery for consumer spending. Sales slumped 3.5 percent in 2009 with the nation still deep in recession.
However, sales remain well below the more robust figures of 5.5 percent or more that the country would typically see in better economic times.
"The forecast is a reflection of the economic conditions. Things have gotten modestly better, but we still have a long way to go," said Matthew Shay, president and CEO of the retail group, based in Washington, D.C.
The retail sales forecast, which excludes sales of autos, gas and restaurants, was shaped by a variety of economic headwinds. Consumer confidence, while rising, is still below what would be considered healthy. The unemployment rate reached its lowest level in nearly three years in December. But it's at a high 8.5 percent. And those that have held on to jobs are seeing paltry wage gains that are not keeping up with the rising costs of everything from food to clothing. The value of the U.S. home has yet to recover, with foreclosed properties dragging down prices everywhere.
Consumer spending because it accounts for 70 percent of all U.S. economic activity. And concerns are growing after a holiday season that produced solid sales increases but was marred by heavy discounting to get shoppers to spend. Merchants may have to keep cutting prices and also come up with new ways to get shoppers to spend.
Sales for the November and December period, which account for as much as 40 percent of total annual sales, rose a better-than-expected 4.1 percent, according to NRF's measure, but business stalled in December. Furthermore, a report Thursday showed that retail exports to Europe sank in November far more than overall U.S. exports did - offering yet more evidence that the economic crisis overseas has begun to weigh on a recovering, but still fragile, U.S. economy.
If European consumers are pulling back, that could directly affect hiring in the U.S. just as the job market has shown recent signs of strengthening.
Still, consumers increased their borrowing in November by the most in a decade, according to a recent report. That could be promising for the retail sector, Shay said, if consumers are growing confident enough to take on debt again.
It may also mean, however, that shoppers are using credit cards only because take-home pay has stagnated. The savings rate fell in November to the lowest level since the recession began, perhaps a symptom of working wages stuck at levels unlikely to revive the retail sector.
Retailers will have to wait and see.
"We'll see a conservative approach to ordering," said Janet Hoffman, managing director of Accenture's global retailing practice. She expects orders for the rest of the year will be either unchanged or there will be modest increases.
The annual sales forecast was released as thousands of retailers gather in New York for the industry's annual convention.
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