Retail Environments - September 2013

debt in May was $603 billion, a 22-month high, reflecting only a modest 1 percent increase over the past 12 months. Annual Home Equity Real Estate Credit in May shrunk to the lowest level since fall 2008, reflecting consumers who are not eager to carry more debt than they feel they need.

The current savings rate of 3. 2 percent is near the historic average of the last 20

years, although down from the mid-2010

peak of 5. 8 percent. The fact that consumers have savings to draw down is a big difference from 2006/2007 when savings fluctuated between 1.0 and 2. 5 percent and inflation was 2. 6 to 4.0 percent.

Inflation-adjusted Total Personal Income has risen 2. 4 percent above last year’s level (on an annual basis), and

Disposable Personal Income that allows for discretionary spending is up 1. 8 percent. Inflation is not eroding personal incomes, allowing consumers to maintain their current levels of consumption.

Double-digit gains in the stock market have likely eased some financial tensions, as has the Federal Reserve’s commitment to keep interest rates low for the foreseeable future.

In short, consumers are spending, even as they keep their debt levels in check.

Corporate Profits for Domestic Retail Trade. Although consumer spending has been mild in this post-2009 period, corporate profits over the last 12 months rose 20. 2 percent. Right-sizing in recent years has created a healthier industry, able to invest in their markets and weather volatility in the economy.

Construction. Housing starts and

will not go negative in 2014. The American at 52.9—an impressive 15. 5 percent above

Institute of Architects’ Architectural Billings
Index in May was above the benchmark 50,

Architectural Inquiries is even higher at 59.1. However, thinking of building and doing so are not always in sync.

PREPARE FOR GROW TH

Among the keys to a more vibrant retail environment will be employment growth.

Employment is trending upwards; 2. 1

million jobs have been created in the last year. This should carry retail sales growth through 2014. However, employment growth ( 1. 5 percent) remains below pre-recession levels and hardly reflects a surging economy. We have the lowest labor force participation rate in more than 30 years, with many new hires at the low end of the economic wage scale. Fears that businesses will have to pay or be penalized for providing health care for every 30-hour-per-week worker seem to be slowing employment growth as well as business investment.

Coming into the upside of the business
cycle in 2015, we expect consumers as well
as businesses will be well positioned to
be less concerned about what could or
might go wrong in the economy and instead
prepare to meet increasing demand in the
years to come.

As Jim Collins, author of Built to Last, Great By Choice, reminds us from his 30

years of conducting research into successful businesses, “Whether we prevail or fail depends more on what we do than on what the world does to us.”

More for A.R.E. Insiders

A.R.E. members and industry suppliers— Don’t miss a more detailed discussion of the short- and long-term economy from Dr. Jeff Dietrich when he keynotes A.R.E.’s Industry Summit on November 7 at the Ocean Reef Club in Key Largo, Fla. More information is online at www.retailenvironments.org and in the A.R.E. Insider edition of this magazine, on page IN2.

Dr. Jeff Dietrich is a senior
analyst for the Institute for
Trend Research. ITR’s fore-
casts have appeared in The
Wall Street Journal, New
York Times, USA Today,
Business Week, The Washington Times,