U.S. Retail Sales Growth to Strengthen in Late-2001

Charlie Nelson
Managing Director, foreseechange (www.foreseechange.com)
January 2001

Our forecasting model of U.S. retail sales incorporates the impact of employment growth and interest rate movements.  Both of these factors have a lagged impact on consumer spending because:

• When rates are rising, households with debt try to maintain spending power for as long as possible – running down savings or going further into debt;
• When rates are falling, households with debt initially tend to repair their financial situation before spending their extra money.

Essentially, consumers are habitual and take time to change habits.  With respect to interest rates, we also have to acknowledge that households with savings react in the opposite way to households with debt, masking the overall reaction for a while.  These opposite effects would differentially impact on different types of commodity due to different lifestage interactions with debt and saving and with expenditure by commodity.

The chart shows our forecast based on June 2000 data – that is, before the recent cut in rates was even on the radar screen.  The predicted slowdown in late 2000/early 2001 is largely due to previous rate hikes.  Note that growth was predicted to level out at 6% without the rate cut – hardly recessionary.  The January rate cut will boost spending growth above the 6% level in late 2001, particularly if oil prices do not go up in the meantime.

Our forecasts will be updated quarterly and progressively extended to broad business types.  Annual subscription is $200 (U.S. dollars).

Please complete the form below if you wish to subscribe.  We will send you our invoice for $200 along with your first forecast update (quarterly forecasts to Dec. 2002).

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