Healthy economy sparks more retail spending than expected

DAYTON, Ohio -- Retail sales are growing even more than expected as a strong economy draws higher consumer confidence. But more shoppers are expressing concerns about the economic unknowns throughout the rest of 2018.

Shoppers are spending more this year with extra disposable income, a strong job market, and record-high household worth, according to the National Retail Federation. The organization previously predicted that retail sales would grow between 3.8 and 4.4 percent in 2018 but recently updated its forecast, expecting retail sales to increase a minimum of 4.5 percent year-over-year.

"Consumers have more disposable income vis-a-vis the tax cuts at the end of late last year," said Gordon Gough, president of the Ohio Council of Retail Merchants. "Folks are seeing more dollars in their paycheck ... which is giving them more comfort to spend more."

The consumer sentiment index, which measures how households perceive the health of the economy, reached 97.9 in July, up 4.5 points from July 2017, according to the University of Michigan's consumer surveys.

Hats N More, a sports apparel small business with five locations at the Dayton Mall, The Greene Town Center, Florence Mall in Kentucky and Tri-County and Northgate malls in Cincinnati, has seen about 5 percent growth across stores this year, said owner Mark Stapelton.

"You always get a lot of lookers," Stapelton said.

Now, he said, those lookers are starting to spend and the buyers are spending more.

Larger retailers have seen similar sales increases, including Kroger, the largest grocery provider in the region. The company recorded a 2.8 percent year-over-year sales increase in quarter one of 2018 when excluding fuel and effects from the sale of the company's convenience store.

"The Dayton Area Chamber of Commerce represents about 2,400 businesses throughout the region, and I think that the general vibe that we're getting from those businesses is that they're having good confidence in the economy," said Chris Kershner, executive vice president of the chamber.

Many analysts say the United States is at full employment, the most desirable level of employment where all who are willing and able to work are employed.

"The economic health of the Dayton region is doing well," Kershner said. "We're diversifying our industry base, and we have a very strong work force here of skilled employees, and the Dayton region continues to have a low-cost of doing business, which allows for continued business investment."

Consumer and business confidence is high right now, but several unknowns like tariffs and geopolitical issues can affect the economy. Consumer confidence can also be deterred by a sharp decline in the housing market or a substantial downturn in the stock market, Gough said.

While the first half of the year fared better than expected, the second half holds obstacles with tariffs shaking some consumers' faith in the economy. The University of Michigan's study found an increasing concern across political parties, where 35 percent of households surveyed spontaneously mentioned that tariffs would have a negative economic impact, up from 21 percent in June and 15 percent in May.

In July, tariffs of 25 percent went into effect on $34 billion worth of Chinese goods and are scheduled to take effect on another $16 million this month, the NRF said in a release. While both lists contained a relatively low number of consumer products, another round of tariffs on $200 billion of goods currently under consideration would include more of the items consumers regularly buy from China.

"We don't want to see these economic gains derailed by protectionist trade policy," said NRF President and CEO Matthew Shay. "With retailers ramping up imports and stocking their warehouses before most of the proposed tariffs will take effect, an immediate impact on prices on consumer goods is unlikely, but that won't last for long."

But Gough and the NRF said they remain optimistic about retail's near future.

"There are many factors that can impact our forecast, but our overall outlook is optimistic," said NRF Chief Economist Jack Kleinhenz. "Spending was weaker than expected at the beginning of the first quarter but has grown more rapidly since then, and we continue to anticipate strong sales during the second half of 2018."

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