Sales growth and challenging outlook on tap for Thursday

Retailers who report monthly sales are set to report their best December results in several years this Thursday assuming preseason forecasts and in-season upward revisions prove accurate. Total holiday sales are forecast to increase in the low- to mid-single digits, and Thursday’s monthly results from the likes of Target, Macy’s, Kohl’s, TJX and others will offer an indication of how good a season it was. Challenging weather conditions, particularly in the Northeast, may have hindered store traffic and gift card redemption activity late in the month, but not enough to undermine what was otherwise a solid rebound from several years of weak consumer demand.

That’s good news considering the health of the American consumer upon whose shoulders a continued strengthening of the economy rests has been a much debated topic. However, while the December numbers are expected to be good, the holiday euphoria likely to result from their release will quickly fade as retailers share an outlook for 2011 that factors in some significant challenges.

Housing prices continue to decline, turnover is low, the job market is weak and wage growth remains limited. If that weren’t enough, rising fuel costs will eat into disposable incomes in the months ahead just as increased prices appear likely due to commodity inflation. These factors weigh heavily on the consumer spending outlook even if December results show a nice increase from the prior year. It is also important to remember that release of monthly sales from a handful of retailers is exactly that and as such should not be overly relied upon as an indicator of anything other than consumers who have jobs and had restrained spending succumbed to retailers’ seasonal promotional efforts that were early and relentless.