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Shopping Centers Today -> November 2003
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RETAIL’S FATE HINGES ON JOBS, ECONOMIST WARNS
BY DONNA MITCHELL
The retail real estate industry’s prospects are promising in the near term, but its continued success will partially depend on a decline in unemployment next year, an economic expert told attendees at September’s ICSC Retail Real Estate Capital and Finance Conference in New York City.
Despite the weakness of the U.S. economy, consumers continued to spend, thanks to tax cuts, mortgage borrowing and retail price deflation, said Mark Zandi, chief economist and founder of Economy.com, a West Chester, Pa.-based economic research and analysis service. Those factors have put about 5 percent more disposable cash in consumers’ hands since last year and bode well for a happy Christmas for retailers. Holiday sales will increase by about 4.8 percent over last year, he said, which would make it the best holiday season since 1999, when sales increased almost 8 percent over the previous year.
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Early next year, however, some sources of that extra cash will dry up. For one thing, the United States has likely seen the last of tax cuts in the short term, thanks to a federal deficit that is expected to hit nearly $500 billion next year, Zandi noted. He also said he expects mortgage-debt borrowing to slow down. Between selling their homes, refinancing mortgages and getting home equity loans, Americans are projected to reap $800 billion this year. But with a burst of the housing market bubble looming — especially in the coastal states — homes will stop being cash machines next year.
Instead of these sources of cash, the key to the retail industry’s strength in early 2004 will be job creation, Zandi said. Since peaking about three years ago, the U.S. job market has shed about 3 million jobs across several economic sectors, said Zandi. Gross domestic product is expected to accelerate through the end of next year, but companies will have to start hiring if the effect is to reach the retailer sector.
“Industries will have to stop their job-cutting,” he said. The economy will need about 1.5 million to 2 million new jobs to compensate for the absence of tax cuts and home-equity-generated cash. Those numbers might look big, but such expectations are not unrealistic, given the size of America’s labor force, he added.
During a later panel discussion, retailers expressed optimism that they could maintain their sales and their expansion plans. Admittedly, some retailers have enjoyed generous helpings of capital that allow them to cope with lower same-store sales, said C. David Zoba, executive vice president and general counsel at Galyan’s Trading Company, a Plainfield, Ind.-based sporting goods retailer.
Working women already provide plenty of demand for the wares sold at such stores as The Dress Barn, said Elise Jaffe, senior vice president of the Suffern, N.Y.-based women’s apparel retailer.
“More women are in the work force and are staying in the work force,” Jaffe said. “There is business out there for us. We see an opportunity and are going after that.”
The conference was held at the Marriott Financial Center, near the site of the World Trade Center.
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