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Economic Forecasts

Consumers Still the Economy’s Backbone

Kiplinger's latest forecast on retail sales and consumer spending

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate will decline further More »
Interest rates 10-year T-notes at 3.2% by end '18 More »
Inflation 2.4% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in October More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 5.1% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

Retail and food service sales started the third quarter strong, growing a solid 0.5% in July. Spending has done very well since March, indicating how much cuts to personal tax rates have boosted consumers. Meals out, typically a discretionary spending item, were phenomenal the past three months, which also indicates that consumer sentiment is high.

2018 should be a good year for retail. Sales, excluding gasoline and autos, will grow 5.1%, better than 2017’s 4.2% pace. Building materials’ sales are advancing at a more sustainable 4.1% rate compared to a hot 8.2% in 2017. Sales of all other goods will increase 4.7% in 2018, a step up from 2017’s 3.9%, and the best gain in seven years. E-commerce will have yet another banner year, growing 14%, while in-store sales should do all right at 3.5%, their best showing since 2011.

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Auto sales will rise only 2.8% after heady years, but have defied predictions of an earlier slowdown. Tax changes make it easier for businesses to purchase motor vehicles, which will help the industry in a year of easing consumer demand.

Restaurant sales should jump 7.1% in 2018, their best growth since 2015, as flush consumers eat out more than cash-strapped ones. These sales have also defied predictions of a slowdown. But, eventually, most chains should find expansion harder because of labor shortages, which will also curtail sales increases and boost wage costs.

SEE ALSO: 6 Retailers That Can Stand Up to Amazon

Source: Department of Energy, Price Statistics