Vaccines Key to Robust Growth Forecast of 6.5%-8.2%, Says NRF CEO Shay

Pending broad distribution and administration of COVID-19 vaccines, retail growth is forecast to surge 6.5%-8.2% to $4.3 trillion-$4.4 trillion in 2021, the highest growth rate since 2004, said National Retail Federation CEO Matthew Shay on a Wednesday call. The forecast includes store and non-store sales. That follows a strong 2020 for U.S. retail, where sales advanced 6.7% to $4.1 trillion vs. 2019. Retail sales have averaged just under 4.5% growth over the past five years, but the “outlier” 2020 skewed that rate higher, he said. Without 2020, retail sales growth would have been closer to 3.5%.

Online and non-store sales are expected to rise 18%-23% to more than $1.1 trillion-$1.2 trillion as many large and midsize NRF members made significant investments in internet capabilities last year. NRF Chief Economist Jack Kleinhenz said some portion of non-store sales might fall off as people decide they want to go back into stores. Historically, online was 15%-16% of overall retail.

Much of the rosy forecast is based on the “effectiveness of the vaccines,” said Shay, citing “very healthy” macroeconomic conditions that will “continue to improve.” He mapped diverging lines showing the rise of administered vaccines vs. a decline in infection rates. Those trends were further supported by news Wednesday that Food and Drug Administration within days may authorize for emergency use Johnson & Johnson’s single-dose coronavirus vaccine.

Risks to the 2021 retail forecast are that COVID-19 variants are “pernicious” and that vaccines aren’t effective, said Kleinhenz, saying that’s “not a very probable one.” Economic growth won’t be consistent in all regions and sectors but will depend on demographics and government policies. The forecast is slightly wider than usual in an environment "where there are so many things that are unclear,” said Shay. Consumers have been “extremely resilient” throughout the pandemic, and that’s expected to continue as retailers respond to the pandemic in “agile, flexible and innovative ways,” he said.

Kleinhenz called the forecast “pretty impressive.” In addition to healthy macroeconomic conditions, Kleinhenz cited the second year of “extraordinary” household savings of at least $1 trillion, robust stock valuations, low interest rates and strong housing prices. “The consumer certainly has purchasing power and is willing to spend.”

Several rounds of government stimulus programs bolstered parts of the economy during the pandemic, said the executives. Studies showed recipients have spent a third of stimulus checks, saved a third and used a third to pay down debt, said Kleinhenz.

The economist sees a pickup in jobs growth and wage growth this year. NRF expects job growth to average 220,000-300,000 monthly toward midyear. Wages are up 3.4%, said Kleinhenz, citing data from the Federal Reserve’s Employment Cost Index in Q4. Americans aren’t leveraged as they were in the past, he said, with household debt service ratio the lowest in 40 years.

Retail benefited in 2021 from a shift in consumer spending toward products vs. services, said Kleinhenz. Before the recession, services were about 69% of household spending, and that has drifted down by 2.5 percentage points, he said. “There will be some shift back up to services as the economy starts to reopen.”

Spending is varying by income level. The more affluent haven’t been spending as much as lower and middle income consumers, said Kleinhenz. Government stimulus programs benefited lower and middle income consumers, “and they have been spending.” Consumers are looking to spend 4.2% more than last year -- the highest in five years, he said, citing data from the Federal Reserve of New York. NRF is seeing some price increases at retail, reflecting supply and demand conditions. Supply costs are also a factor, he said.

Shay put the vaccine front and center for retail executives when asked how NRF is engaging with the Biden administration and Congress. “All of the focus is on the vaccine and vaccine distribution,” he said of retailers: “How do they take care of their teams, how do they protect their customers, how do they serve their communities.” NRF is also working with the administration and legislators to make sure that those who need economic support are receiving it, he said.

Shay cited conversations on bipartisan support for infrastructure spending on roads, bridges and ports to help the economy move forward. “The shortcomings in our own logistics and transportation system are being laid bare with container ships idling for days and weeks off the coast of the United States trying to be unloaded,” he said. On immigration, he cited the need for a “comprehensive solution.” He also called for education and training for “the workforce that’s here today.” On the minimum wage, NRF supports a market-driven solution rather than one dictated by government. Shay noted the retail industry has consistently raised wages and many already pay more than the proposed $15 hourly minimum.