New York, NY, April 1 -- U.S. retail sales will rise this year at their slowest pace in at least a decade -- a far slower pace than originally expected -- because the war in Iraq and high oil prices are crimping consumer and business spending, a trade group said on Tuesday.
The National Retail Federation slashed its retail sales growth forecast by nearly a third and now estimates sales for the year will rise just 3.8 percent rather than the 5.6 percent it originally had expected. The Washington, D.C., trade group estimates sales at stores selling general merchandise, apparel, furniture and home furnishings, electronics and appliances, sporting goods, books and music.
A 3.8 percent increase compares with 5.1 percent growth in 2002 and 3.9 percent growth in 2001, the previous low-water mark for the last decade, the group said.
"The Iraqi conflict is hindering decisions made by both businesses and consumers," NRF Chief Economist Rosalind Wells said in a statement. "Not only are businesses taking a wait-and-see approach before making major financial commitments, they are reluctant to conduct business as usual, holding back hiring and causing layoffs of others," she said.
U.S. consumer sentiment slid to the lowest level in almost in a decade in March, but improved from its mid-month level on early euphoria that the Iraq war would be quick and victorious, according to a widely-watched poll released on Monday by the University of Michigan.
U.S. retailers have for the most part avoided making projections on how the war may affect sales, although some big players, including Wal-Mart Stores Inc. and Federated Department Stores Inc., have acknowledged early signs of shopper reluctance.
Wal-Mart, the world's largest retailer, on Monday cautioned sales at stores open at least a year would fall at the low end of its March forecast, and said it was seeing what it called a "CNN effect," as news from the war keeps Americans in front of their televisions and out of stores. Federated, parent of Macy's and Bloomingdale's, also warned its same-store sales had dropped below its monthly expectations since the war's start on March 20.
The NRF also noted that the escalating price of crude oil has forced consumers to dig deeper into their pocketbooks to pay for home heating bills and run their cars, leaving them with less money to buy non-essential items.
Wells said, however, that consumer spending should "significantly improve" once the Iraq conflict is resolved, likely by the second half of the year.
The NRF said it projected first-quarter retail sales to increase slightly more than 2.0 percent, half of the previously targeted 4.0 percent rise. Sales are now expected to increase 2.5 percent for the second quarter, 4.7 percent for the third quarter, and 5.3 percent for the fourth quarter.
