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  • Retail Spending: The Trends, Challenges and Outlook

    A Presentation for 2013 FTA Revenue Estimating Conference

    Hilton Springfield Hotel Springfield, IL October 7, 2013

    Michael P. Niemira Vice President, Chief Economist & Director of Research

    International Council of Shopping Centers 1221 Avenue of the Americas, 41st Floor

    New York, New York 10020-1099 mniemira@icsc.org

  • International Council of Shopping Centers

    Founded in 1957, the International Council of Shopping Centers (ICSC) is the global trade association of the shopping-center industry. With over 60,000 members in the U.S., Canada and more than 80 other countries, its members include shopping-center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. As the global industry trade association, ICSC links with more than 25 national and regional shopping center councils throughout the world.

  • Highlights Highlights

    Three Faces of Consumer Spending What Worries the Consumer?

    What Motives Consumer Spending? ICSCs 2013 Holiday Outlook

    Longer-Term View

  • 1

    A Look at the Present Situation

  • 2

    141312111009080706050403020100

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    % C

    hang

    e fro

    m th

    e P

    rior Y

    ear

    yraxisSlowing Pace of Consumer Spending

    Total Consumer SpendingNon-Motor Vehicle Spending (MV about 3.7% of total consumption)

    Inflation-Adjusted Growth Rates

    141312111009080706050403020100

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    % C

    hang

    e fro

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    e P

    rior Y

    ear

    yraxisSlowing Pace of Consumer Spending

    Total Consumer SpendingNon-Motor Vehicle Spending (MV about 3.7% of total consumption)

  • U.S. Real Consumer Spending Pace is Trifurcated

    Challenge: Without Stronger Service Spending, Economic Growth Will Remain Sluggish

    --- Year-over-Year % Change ---

    Services Durables Non-Durables

    2011

    Q1 2.2% 9.3% 2.8%

    Q2 2.2 5.9 2.5

    Q3 2.3 5.5 1.7

    Q4 1.9 5.7 0.7

    2012

    Q1 2.0 6.8 0.9

    Q2 1.9 7.8 1.2

    Q3 1.4 8.6 1.7

    Q4 1.3 7.8 1.6

    2013

    Q1 1.1 6.9 1.7

    Q2 1.0 7.7 1.6

    Q3 (QTD) 0.8 7.3 1.9

    13121110

    10

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    % C

    hang

    e fro

    m P

    rior Y

    ear % C

    hange from Prior Y

    ear

    Strong Durable Goods, Moderate Non-Durables,But Weak Services

    Consumer Spending for ServicesConsumer Spending for Durable GoodsConsumer Spending for Non-durable Goods

    3

  • 4

    What Worries the Consumer?

  • 5 Source: Bloomberg Business News.

    Under $15K$15 TO $24.9K

    $25 to $39.9K$40 to $49.9 K

    $50K to $74.9 K$75 K to $99.9 K

    Over $100 K

    Income Strata

    -70-60-50-40-30-20-10

    01020

    Con

    fiden

    ce R

    eadi

    ngs

    NORMAL 3-Week Average--2013 3-Week Average--2012

    Confidence Curve

    Normal = Ten-Year Average

    The Confidence Curve By Household IncomeHealthy at the High End

    Data Through 9/29/2013

  • 6

    50

    75

    100

    125

    150

    175

    200

    225

    250

    50

    75

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    86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

    Baker-Bloom-Davis Policy Uncertainty IndexAverage (1985-2013)

    Baker-Bloom-Davis Policy Uncertainty Index

    >

    The Policy Backdrop for the Consumer Sector

  • 7

    Gallup: History Suggests Shutdown Stakes May Not Be That High

    1995 battle didn't affect views of Clinton, Gingrich, nor U.S. in the long term

    Americans already view Congress itself -- and the Republicans and Democrats who are part of it -- very poorly, meaning there is not

    much room for their perceptions of the legislative branch to worsen further.

  • 8

    Whats the Relationship Between Policy Uncertainty (BBD Index) and Retail Spending?

    Measure Statistical Correlation Lead*

    Total Retail Sales (% Change, Y/Y) -0.255 3 Months

    GAFO Store Sales (% Change, Y/Y) -0.221 Concurrent * Based on Highest R2 between 1985 and 2013

    Statistically, measured policy uncertainty has a very weak and a very short-term

    relationship with retail spending.

  • 9

    Motivations to Spend or Save

  • 7

    131211100908070605040302010099989796959493

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    Year

    -to-Y

    ear C

    hang

    e, In

    verte

    d Percentage Change in S

    ales

    Spending and UnemploymentChange in the Unemployment Rate (Inverted) and % Change in Shopping-Center Sales

    Unemployment Rate (Change), Left Scale (Inverted)Shopping-Center Sales Pace, Right Scale

    The Work-Spend Nexus

    10

  • 11

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    Perc

    ent o

    f Dis

    posa

    ble

    Inco

    me Percent of D

    isposable Income

    Personal Saving Rate

    Quarterly RateSource: U.S. Commerce Department.

    Too Little Savings?

  • 12

    Consumer Savings and Inflation Period Personal Saving

    Rate Consumer

    Inflation Rate

    1980-89 9.3% 5.2%

    1990-99 6.7 3.0

    2000-09 4.3 2.6

    2010-13Q2 5.4 1.9

    2013:Q1 4.1 1.4

    2013:Q2 4.5 0.0

  • -4

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    2 4 6 8 10 12 14 16

    2 4 6 8 10 12 14 16

    Personal Savings Rate

    CPI

    Infla

    tion

    Rat

    e

    Stylized Facts About the U.S. Personal Savings Pattern The Higher the Inflation Rate, The Higher the Savings Rate and Vice Versa

    1948-2013

    Scatter plot suggests that as the inflation rate goes up, the saving

    rate does as well. A linear trend of these quarterly data suggests if:

    Inflation Rate Savings Rate

    2% 2.1%

    4% 7.6%

    6% 12.1% Non-Linear Relationship from Scatter is: SAVERATE=(((INFLATION^2)-2.958)/0.2251)^(1/2)

    Logic: Consumers Hold More Precautionary

    Savings as Inflation Rate is Higher.

    13

  • 14

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    Per

    cent

    age

    Cha

    nge

    from

    Prio

    r Yea

    r Percentage Change from

    Prior Year

    Consumer Inflation

    pchya(custsa0)Source: U.S. Bureau of Labor Statistics.

    Moderating Pace through Q2

  • 15

    Economic Uncertainty is Captured in the Katona Effect

    14121008060402009896949290888684828078767472703.5

    3.0

    2.5

    2.0

    1.5

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    Vol

    atilit

    y in

    the

    Pric

    e Le

    vel

    % C

    hange (SM

    SA

    R w

    ith a Filter)

    The Katona Effect and U.S. Consumer SpendingVolatility in the Consumer Price Level Inverted

    Price Level Volatility on Left ScaleReal Consumer Spending Growth (Smoothed) on Right Scale

    Total Real Consumer Expenditures

  • 16

    Close Up: Katona Effect vs. Real Chain-Store Sales Spending

    131211100908070605

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    ling

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    ndar

    d D

    evia

    tion

    [Inve

    rted

    Sca

    le]

    Quarterly R

    eal Chain-S

    tore Sales G

    rowth (R

    ight Scale)

    The Katona Effect ReignsPrice Level Volatility and Spending

    Price Level Volatility [Inverted] on Left ScaleGrowth of Real Chain-Store Spending on Right Scale

    More Upbeat

  • 17

    Katonas concept of consumer uncertainty

    Measure Statistical Correlation Lead*

    Total Retail Sales (% Change, Y/Y) -0.480 17 Months * Based on Highest R2 between 1985 and 2013

    Statistically, this measure of uncertainty is a more powerful force

    for consumer spending.

  • 2

    A Look at U.S. Holiday

    Spending

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    % o

    f Ann

    ual % of Annual

    November-December GAFO Sales as Share of Annual SalesShifting Importance of Christmas Sales

    19

    In-store Holiday Sales Continue Downward Trend as Share of Annual Spending

    Diminishing Importance of Holiday Spen

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