February 13, 2001

The long-anticipated slowdown in economic growth finally hit in the fourth quarter of 2000, with total retail sales growth slowing to 4.2 percent over the fourth quarter of 1999, a significant drop from the 9.5 percent increase in the same period of 1999. Mass retailers held their own, however, according to the International Mass Retail Association’s Economic Trends Report.

Discount department store sales increased 6.9 percent, better than the total retail sales rate for the quarter. This was slower, however, than the 9.5 percent growth in the fourth quarter of 1999, which was partially driven by Y2K stocking and Millenium celebration spending.

For the full year, discount department store sales rose 9.1 percent and represented 69 percent of total department stores sales. Discount department stores’ share has increased steadily each year, averaging about 2 percentage points annually since 1998.

Virtually every retailer experienced poor earnings. Retail industry profitability fell in the third quarter of 2000, down 47 percent from the third quarter of 1999, due to heavy discounting that began well in advance of the fourth quarter holiday selling season. Fourth quarter results also likely reflected the continuing declines necessitated by discounting needed to bring consumers into the stores.

So why were consumers so reluctant to spend this quarter? Consumer confidence dove, despite the fact that unemployment remained very low and personal incomes grew. News reports speculating that a recession was looming, coupled with a skittish stock market and a daily litany of layoffs by major companies across the country, caused many consumers to put spending on goods on the back burner. Expectations of a deteriorating business climate and worsening job situation increased sharply in the quarter.

Their concern was not unwarranted. U.S. economic growth in the quarter was the weakest since 1995. However, it should be noted that GDP growth for the full year — 5.0 percent — was the strongest annual figure since 1984.

Other points from IMRA’s Economic Trends Report for the fourth quarter of 2000:

Retail employment unadjusted for seasonal variations rose 1.4 percent during the fourth quarter compared with the fourth quarter of 1999.

Imports of consumer goods increased by 10.6 percent. Products that experienced strong import growth during the quarter included rugs and textile floor coverings (up 20.2 percent) and consumer electronics (up 19.4 percent).

Retail wages paid by general merchandise stores (all types of department stores) increased 5.8 percent — compared with a 4.1 percent rate for the retail industry as a whole.

Total personal income increased by 1.0 percent, and disposable income grew 0.7 percent, due to the lowest unemployment rate in 30 years and strong growth in wages and salaries.

For more information at http://www.imra.org.

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