Nov 5, 2003
Prospects For Holiday Sales Good, But May Be Tempered By Lingering UnemploymentSource: Various

In mid-October, the Federal Reserve assessed the U.S. recovery to be gaining speed with stronger consumer spending and a pick-up in activity at long-ailing manufacturers. The Fed’s assessment, as reported by Reuters, was based on information gathered from a network of business contacts and showed that U.S. consumers continued to underpin the recovery.

Other recently released economic data would seem to support the Fed’s assessment. As was widely reported last week, the broadest measure of the economy’s performance, the gross domestic product (GDP), grew at a 7.2-percent annual rate July-September. This rate was twice of what was reported for the second quarter and was the best GDP figure since 1984.

On the sales end, retailers saw a pronounced jump in the third quarter, prompting the National Retail Federation (NRF) to forecast 4.1-percent GAFS sales growth in 2003, up from its July projection of a 3.5-percent increase. GAFS sales are those in general merchandise, apparel, furniture and home furnishings, electronics and appliances stores, and sporting goods, hobby, book and music stores.

First-quarter GAFS sales increased only 1.4 percent. Second-quarter sales increased a more moderate 3.1 percent, while third-quarter sales are projected to increase a strong 5.8 percent and fourth-quarter sales are estimated to increase 5.5 percent.

The Commerce Department also released retail sales figures in October. It reported that retail sales fell 0.2 percent in September from August, but were up 0.3 percent when auto sales were excluded, and posted a 7.5-percent gain over September 2002. Total sales for the July through September 2003 period were up 6.4 percent from the same period a year ago. Building material and garden equipment and supplies dealers were up 11.4 percent from September 2002.

And This Means”¦.

Will this upbeat data surely translate to positive conditions in the coming months? “Economic indicators are as valid as weather forecasts; they take current conditions and extrapolate forward. If everything aligns correctly, you can place a lot of credence in what is being said. But, there are too many variables to say that we are over the hump and well on the way to recovery,” said Stan Pohmer, president of Pohmer Consulting Group, Minnetonka, Minn.

Pohmer cited unemployment as the “biggest wildcard” among these variables. “The GDP and sales forecasts are wonderful, but unemployment has not improved at the same rate. Disposable income is a function of unemployment. If you’re on unemployment, your discretionary income is limited,” he commented. “So, although the economic indicators are very positive, the realities that affect discretionary income – or purchasing power – are still a bit on the questionable side.”

As reported by CNN/Money, U.S. job-cut announcements rose in October to their highest level in a year. Data tracked by Chicago-based outplacement firm Challenger, Gray & Christmas shows 171,874 job cuts in October, up 125 percent from September. The automotive industry had the most cuts at 28,363, followed by retail with 21,169 cuts. Challenger also surveyed human resources executives about their hiring intentions and reported that 78 percent don’t expect to see a significant upturn in hiring until the second quarter of 2004.

Pohmer also said consumer confidence will impact whether the positive economic news continues. “Although the indicators are good, the consumer confidence level is still not real strong,” he explained.

The Conference Board’s Consumer Confidence Index, which declined in September, did advance in October to 81.1, up from 77.0. Related Conference Board data released in October included the Expectations Index, which rose to 90.7 from 88.5, and the Present Situation Index, which increased to 66.8 from 59.7.

Another consumer sentiment figure, the ABC News/Money magazine Consumer Comfort Index, remained in a negative range for the week that ended October 5. According to CNN/Money, the index, comprised of ratings on the economy, personal finances, and the buying climate, stood at -20 on its scale of +100 to -100. The survey’s buying gauge, which measures consumers’ willingness to spend, fell to its lowest level since mid-May: Only 36 percent said that now is an excellent or good time to make purchases, down from 38 the previous week.

Looking Ahead

What does the end of 2003 hold for retail sales, particularly in the floriculture industry? NRF has projected that sales related to Christmas, Hanukkah and Kwanzaa will increase 5.7 percent this year to $217.4 billion, the largest increase since 1999. The NRF 2003 Holiday Consumer Intentions and Actions Survey found that the average consumer plans to spend $672 this holiday season, up from 2002 when consumers spent an average of $649. Of that amount, consumers plan to spend $518 on gifts, $34 on decorations, $26 on greeting cards and postage, $79 on candy and food and $14 on flowers. Half of consumers (50.8 percent) also plan to take advantage of sales and promotions to purchase non-gift items for themselves, with the average consumer purchasing additional items planning to spend $147.

The NRF will be releasing the second installment of the 2003 Holiday Consumer Intentions and Actions Survey on November 18.

Pohmer predicted that holiday sales would be considerably stronger than last year but questioned whether they would meet projections. He also questioned where consumers would spend their dollars. Given economic uncertainties, consumers may be careful about how they spend the dollars that they have. “I think discounters and warehouse clubs will get a disproportionate amount of the forecasted spending. The department stores will continue to suffer, as will the specialty stores, unless they come out with a barn-burner hit type of product. They will do better than last year, but they won’t get most of the benefit of the increased spending.” Pohmer said.

Turning to the floriculture industry, Pohmer said he thinks gardening and gardening gifts will do well. “The traditional items of fresh-cut Christmas trees, Poinsettias, Christmas cactus, and items of this nature should do well. Amaryllis and Paperwhite Narcissus kits should do well, because they’re relatively inexpensive stocking stuffers and great gifts for teachers and employees,” he said.

“How the economic forecasts portend for the spring season remain to be seen,” Pohmer concluded. “Christmas is a good precursor to spring sales. We need to wait and see how good this Christmas really is and where the dollars are being spent.”

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