The challenging macro-economic environment will continue to be a drag on retail sales growth, limiting gains to 3.5 percent this year, according to a forecast by The National Retail Federation (NRF), the retail industry's largest trade association.
"Consumers will be under financial stress from high energy costs, the fallout from the housing slump, and sluggish employment and income growth," said NRF chief economist Rosalind Wells. "Shoppers will seek to pay down debt, spend more in line with income growth and approach discretionary purchases with more restraint."
While the outlook is somber, Wells expected sluggish first-half sales to eventually give way to stronger sales in the third and fourth quarters. NRF projected retail sales to increase 3.2 percent in the first half of the year followed by a 3.8 percent increase in the second half as economic conditions improve.
"Retailers will once again be forced to market to more practical consumers, many of whom will be looking to trade down," Wells said. "Even areas of past high growth like luxury goods and online shopping will feel the pressure. In 2008, the challenges will be formidable for everyone."
The NRF's projections followed the release of its 2007 holiday sales tally. Revenue rose 3 percent to $469.9 billion during the combined November and December period, representing the slowest seasonal growth since 2002. Wells advised retailers to respond to disappointing sales with pricing strategies and promotions that encourage consumers to spend.