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By
Reuters
Published
Jan 12, 2010
Reading time
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Job woes, debt to curb retail comeback

By
Reuters
Published
Jan 12, 2010

By Phil Wahba

NEW YORK, Jan 11 (Reuters) - U.S. retailers are in for a much better year as the economy improves, but stubborn unemployment and high consumer debt levels will limit the extent of the recovery, industry experts said on Monday 11 January.



Moody's Economy.com (MCO.N) Chief Economist Mark Zandi said the economy's improvement would pick up speed this year. He forecast that sales for the 2010 holiday season would rise 3 percent to 4 percent from 2009.

"We're going to be pleasantly surprised by Christmas 2010," Zandi said at a National Retail Federation conference in New York.

But an unemployment rate that appears stuck at around 10 percent has some chief executives concerned about the recovery's long-term prospects, despite optimism that consumer spending turned a corner after retailers last week reported December sales above expectations.

"The big negative is the high level of unemployment and we don't see it getting better in the near term," Macy's Inc (M.N) Chief Executive Terry Lundgren told Reuters on the margins of the conference.

The environment remains "challenging" with consumers cautious, one CEO said.

"It's not a need-driven business, it's a want-driven business," Liz Claiborne (LIZ.N) CEO William McComb told Reuters.

"The current environment has made it tougher to hit the consumer's 'want' button."

U.S. retail sales in November and December 2009 rose 1.7 percent, according to ShopperTrak. ShopperTrak, whose data exclude online sales, had forecast sales would rise 1.6 percent.

Pent up demand and a better economic environment are paving the way for U.S. retail sales to keep improving in 2010, said ShopperTrak co-founder Bill Martin.

"The consumer has been in hiding and can't wait to get out there," Martin told Reuters in an interview.

Martin said the first few days of 2010 were promising, although he cautioned that sales had a long way to go to catch up to the pre-recession levels of 2006 and 2007.

ShopperTrak said December sales were up 3.8 percent as shopper spending in the days immediately before and after Christmas made up for lost sales during the Dec. 19 winter storm that battered the U.S. Eastern seaboard and kept shoppers at home.

The U.S. government is set to release December retail sales data on Thursday 14 January.

Zandi predicted that improving sales trends in 2010 would prompt U.S. retailers to begin hiring more employees.

LOWER DEBT FIRST

Zandi called the 65 percent ratio of U.S. debt to gross domestic product "barely manageable" and said it could threaten economic health and curb consumer spending in the long term.

A value-added tax on consumer goods is the most efficient way for the government to raise money, Zandi said, but conceded that could hurt retailers.

"Pick your poison," Zandi said, predicting there would eventually be a VAT tax in the United States, as in most other advanced economies.

Zandi said consumers have a lot of debt to pay down before they can ramp up shopping and banks are willing to lend again.

"Most of the drag of the credit crunch is now," he said. "Once consumers deleverage in two years, spending will pick up."

In the meantime, Zandi said U.S. retailers would have to sell more products to emerging markets to sustain their growth. (Reporting by Phil Wahba; editing by Lisa Von Ahn)

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