Retail Sales On A SevenMonth Slide

April 4, 2003
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LANSING — As far as Michigan retailers are concerned, getting consumers back into their stores largely depends on resolving this nation’s conflict with Iraq.

The war with Iraq isn’t the only issue weighing on the minds of retailers, however, as the stagnant condition of the stock market and high unemployment are two more of their major concerns. But the battle raging in and around Baghdad is their top worry. They see the war as the biggest impediment to consumer spending.

“Retailers clearly believe that uncertainty over what was going to happen in Iraq, and now the war itself, are partly responsible for a continued lag in retail sales,” said Larry Meyer, chairman and CEO of the Michigan Retailers Association (MRA).

“They believe that resolution of the conflict, together with an improved stock market and other signs of a stronger economy, will turn things around.”

The beliefs Meyer referred to came from the Michigan Retail Index, a monthly survey the MRA does with the Federal Reserve Bank of Chicago.

In the survey, retailers were asked to rank the importance of five economic factors to retail sales on a scale from 1 to 5, with 1 being the most important.

The rankings placed resolving the conflict with Iraq at the top with an average score of 2.2, closely followed by a recovery for the stock market (2.4) and then job growth (2.6). Tax cuts finished fourth (3.7) and less consumer debt came in last (4.1).

“I don’t think this comes as any surprise. This survey was in the field before the actual war started; there still was that uncertainty over what was going to happen,” said Tom Scott, MRA vice president of Public Affairs and Communications.

“Although that uncertainty has been resolved by the actual fighting breaking out, we still have a lot of uncertainty over how long it will go, what will be the effects and ramifications,” he told the Business Journal. “The sooner we can get some resolution to this, the better off it’s going to be.”

The problem the retailers may be facing, though, is that some feel the economy’s ills go much deeper than the war. Economist Donald Straszheim recently told USA Today that rising unemployment and overcapacity were also holding the economy back.

“Independent of the war, the economy here in America and economies around the world are really quite weak at the moment,” he said. “It is simply a misreading to conclude that a quick, successful prosecution of this war (means) we’re off to the races again.”

The economy grew at a 1.4 percent annual rate for the last quarter of 2002. Straszheim expects it will grow at a 1 percent rate for the first half of this year, and at 2 percent for the last six months. But he added that a worldwide recession was possible if the war with Iraq goes badly.

An end-of-March report from the Rasmussen Economic Confidence Index had 51 percent of Americans believing the country was in a recession, with 40 percent saying the recession would last at least another six months. Still, Rasmussen reported that consumer confidence was up 11 percent from the end of February at 100.3, although the index fell by five points a few days into the fighting.

February sales for Michigan retailers were down slightly from January and only 27 percent of retailers reported an increase for February from the same month last year.

“Things were improving last year, slowly, over the previous year. It was improving slowly, steadily each month until we got to late summer, early fall — then it went into a skid,” said Scott.

The sales drop began last August, the same month President Bush began his public campaign to disarm Iraq President Saddam Hussein, and sales haven’t rebounded since.

In July, 43 percent of MRA members reported a sales increase from the previous year, but that number fell to 37 percent in August. It fell again in September to 33 percent, and fell some more to 30 percent in October.

It inched up to 31 percent in November, but then slid back to a year-low 28 percent in December. In January, 29 percent had a sales increase, while 27 percent had one in February.

It was Aug. 16, 2002, when Bush started his crusade against Hussein.

“There should be no doubt in anybody’s mind this man is thumbing his nose at the world, that he has gassed his own people, that he is trouble in his neighborhood, that he desires weapons of mass destruction,” said the president last summer.

“I will use all the latest intelligence to make informed decisions about how best to keep the world at peace, how best to defend freedom for the long run,” added Bush.

Despite the downturn in February sales and the tension the conflict with Iraq has created among the storeowners, 52 percent of the retailers projected a sales increase for the three-month period from March through May.

At the beginning of the year, MRA members predicted that their sales would rise by 5.7 percent in 2003 from 2002.

“We’ve been in a doldrums for many months now and we were curious to see what was uppermost in the retailers’ minds — and they told us,” said Scott of the motive for the MRA survey. “It was the uneasiness and uncertainty of what was happening in Iraq.”  

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