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NRF forecasts 3.5% growth in 2005 retail sales

Consumers will prop up the economy again this year, though they could eventually become tapped out, according to The National Retail Federation's 2005 forecast.

The forecast is predicting GAFS sales (general merchandise stores, apparel stores, furniture and home furnishings stores, electronics and appliances stores, and sporting goods, hobby, book and music stores) will increase 3.5% from last year.

Last year, GAFS sales soared 9.9% in the first quarter, which will make first quarter growth this year hard to achieve. Due to tough comparisons, NRF is predicting growth of 3.7% for the first quarter of this year.

The labor market will be a telling factor in the level of growth retailers will experience this year. "The consumer has been remarkable in shouldering this economic expansion, but now something has got to give," said NRF Chief Economist Rosalind Wells. "The labor market will continue to expand this year, though our concern is that modest employment growth will lead to modest income growth, which will put a financial strain on consumers."

Discounters will continue to be challenged as their core consumers are most affected by higher energy costs and slow income growth. Also, as the housing market softens, the furniture and home furnishings sector could begin to experience slower growth.

GAFS sales grew 6.7% in 2004, the highest retail sales growth since 1999.

Starting this month, NRF will broaden the retail categories it tracks, adding food and beverage stores, building materials and garden equipment stores, health and personal care stores and miscellaneous retailers including florists and gift shops. NRF will release a revised historical retail analysis and forecast at the beginning of the second quarter.

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