The increase is above previous predictions of a 3.8%-4.4% increase forecast in February

The increase is above previous predictions of a 3.8%-4.4% increase forecast in February

US retail sales are forecast to increase at a minimum of 4.5% year-on-year in 2018, new figures show, thanks to tax reform and other positive economic inputs – but tariffs threaten to dampen consumer confidence.

The increased 2018 forecast from the National Retail Federation (NRF) excludes automobiles, gas stations and restaurants, and is above previous predictions of a 3.8%-4.4% increase forecast in February.

"Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation's consumer-driven economy," says NRF president and CEO Matthew Shay.

"Tax reform and economic stimulus have created jobs and put more money in consumers' pockets, and retailers are seeing it in their bottom line. We knew this would be a good year, but the first half turned out to be even better than expected. However, a tremendous amount of uncertainty about the second half remains. It could be a banner year for the industry, or we could keep chugging along at the current rate."

Retail sales in the first half of 2018 grew 4.8% year-over-year and have been up 4.4% year-over-year in the most recent three-month moving average. NRF now expects gross domestic product for the year to grow at the higher end of the 2.5%-3% range it forecast earlier.

"We don't want to see these economic gains derailed by protectionist trade policy," Shay adds. "With retailers ramping up imports and stocking their warehouses before most of the proposed tariffs will take effect, an immediate impact on prices on consumer goods is unlikely, but that won't last for long. And just the mere talk of tariffs negatively impacts consumer and business confidence, leading to a decline in spending. It's time to replace tariffs and talk of trade wars with diplomacy and policies that strengthen recent gains, not kill them."

Additional US tariffs of 25% on US$34bn worth of Chinese goods took effect in July, with another $16bn scheduled to come into place this month. However, both lists include a relatively low number of consumer products. 

Another round of tariffs on $200bn in goods from China that would include a broader array of consumer items is currently under consideration and is expected to be finalised in September.

Imports, meanwhile, have been at record levels this summer as retailers bring merchandise into the country before the tariffs can take effect, according to NRF's Global Port Tracker report.

"There are many factors that can impact our forecast, but our overall outlook is optimistic," NRF chief economist Jack Kleinhenz said. "Spending was weaker than expected at the beginning of the first quarter but has grown more rapidly since then and we continue to anticipate strong sales during the second half of 2018.

"Despite this upgrade in our forecast, uncertainty surrounding the trade war and higher-than-expected inflation due in part to increased oil prices could make consumers cautious during the fall season."

In addition to expectations for this year's spending, Kleinhenz said the revised forecast takes into account government revisions to retail sales, personal income and consumption numbers from 2016 and 2017 that affect year-to-year comparisons.

Meanwhile, total retail sales have grown year-over-year every month since November 2009, according to Kleinhenz, while retail sales as calculated by NRF have increased year-over-year in all but three months since the beginning of 2010.