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53
HIGH INTEREST RATES AND
SLOWER ECONOMIC GROWTH
ARE EXPECTED TO PUT INCREASING
PRESSURE ON RETAIL PROFITS THIS
YEAR, BUT, ON THE BRIGHT SIDE,
MANY ECONOMISTS EXPECT
INFLATION TO DECREASE TO
DESIRED LEVELS BY YEAR-END
By Phillip M. Perry
F
asten your seat belts,
and enjoy the ride. Like
airline travelers bracing
for expected turbulence, U.S.
retailers are likely to experience
a tricky operating environment in
2024. On the upside, the economy
will continue to grow although
at a slower pace. Unemployment
remains low, capital investments
are plugging along at a healthy
pace, and the all-important housing
market is burgeoning. On the
downside, higher interest rates
established by the Federal Reserve
to control inflation are putting some
downward pressure on business
activity and shoppers' buying habits.
Economists are taking note by
lowering expectations for the next
12 months.
"[is] year will continue to be a
difficult environment for retailers,"
says Scott Hoyt, Ph.D., senior
director of consumer economics
for Moody's Analytics, a global
economic analysis and forecasting
firm based in New York, N.Y. "We're
expecting 2.5 percent retail sales
growth for 2024, [almost half of ]
the 4.7 percent growth expected
when 2023 numbers are finalized."
When adjusted for inflation, Hoyt
notes, retail sales are expected to
be flat for both years.
e slowdown comes on the heels
of a healthy 9.3 percent retail sales
increase clocked for 2022, a time
when pandemic-era shoppers were
still loading up on goods for their
homes. ose days are gone, and
retailers should expect shoppers to
continue to spend more on services
rather than on merchandise. Hoyt
feels that spending on categories
such as recreation, travel and
entertainment is still below pre-
pandemic levels. "I think we have
another year in which the shift
toward services is going to be
something retailers need to deal
with," he states.
ECONOMIC SLOWDOWN
Retail's current position is a
reflection of a deceleration in the
larger business environment. "We
expect real GDP [Gross Domestic
