Archstone Consulting forecasts that retailers will see a 3-5% overall increase in retail sales this holiday season. Discretionary spending categories such as furniture, household appliances and audio/video equipment are expected to see the greatest boost with a forecasted sales increase of 5-7% over last year. Record low interest rates over the past few years and heavy cash-out refinancing earlier in the year have increased household cash flow and discretionary spending. Like last year, this is driving the tendency to spend more than usual over the coming holiday season.
The unemployment rate has decreased to 5.4% from 6.1% last year. While there has been a net job loss, the general trend for employment is positive, and this bolsters consumer confidence about the economy. In seven out of nine regions in the US, consumer confidence remains substantially above levels one year ago, according to The Conference Board. The recent rise in interest rates requires consumers to have incremental income to support an increase in debt, in turn curbing their discretionary spending. Consumer prices are increasing by 2.7%, while wages are increasing by only 2.3%. This means consumers will have to pay more for goods with relatively smaller income. Between terrorism fears and a Presidential race too close to call, consumers are likely to be particularly cautious in the early Q4 2004.