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Economic Forecasts

Consumers Are Still Feeling Good

Kiplinger's latest forecast on retail sales and consumer spending

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs A tight labor market will make hiring more difficult More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.4% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in October More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 5.1% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

Retail and food-service sales in June showed little sign of slowing down, even after May’s big jump. Since March, sales of all kinds have surged, indicating how much cuts to personal tax rates affected consumers. For the second quarter as a whole, sales rose at a blistering 8% yearly rate. Restaurant sales, typically a discretionary spending item, were phenomenal in both May and June. Also in those two months, sales of building materials finally got on track for a strong year, while motor vehicle sales showed surprising strength.

As a whole, 2018 should be a good year for retail. Sales, excluding gasoline and autos, will grow 5.1% — better than 2017’s 4.2% pace. Sales of building materials are advancing at a 5.3% rate, compared with 8.2% in 2017. Sales of all other goods will advance 4.8% in 2018, a step up from 2017’s 3.9% and the best gain in seven years. E-commerce will have yet another banner year, growing 15%, while in-store sales should do all right at 3.3%, their best showing since 2014.

Auto sales will rise only 3.5% after several heady years, but they have defied earlier predictions of a slowdown. Tax changes make it easier for businesses to write off motor vehicle purchases, which will help the industry in a year of easing consumer demand.

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Restaurant sales should jump 6.3% in 2018, their best growth since 2015, as flush consumers eat out more than cash-strapped ones. These sales have also defied forecasts of a slowdown. But eventually, most chains should find expansion harder because of labor shortages, which will also curtail sales increases and boost wage costs.

SEE ALSO: 6 Retailers That Can Stand Up to Amazon

Source: Department of Energy, Price Statistics