Is Double-Dip on the Horizon for US Retailers?

Stagnant economic conditions?  Yes. A double dip recession? Not likely this year, feel CFOs at major US retailers in a survey we conducted in August/September. Eighty-two percent of CFOs anticipate a continuation of stagnant economic conditions as opposed to a double dip (9%). Few think we will witness a remarkable turnaround.

Our UK counterparts at BDO are finding that companies are spooked by the double-dip possibility, currently being fueled by government rhetoric, thus cutting back on recruitment and other costs.

Back in the US, retailers remain optimistic but cautious. It is unclear at this point what will sustain or energize an economic turnaround.  Many factors linger just beyond retailers’ control. The majority of retail CFOs cite either consistent improvement in consumer confidence and spending (40%) or unemployment (38%) as contingencies for an economic turnaround.  In contrast, less than one quarter of respondents cite either a rebound in the housing market or continued rebound in the U.S. and global financial markets as contingencies. A negligible number of respondents believe the success of the Financial Reform Bill will influence an ongoing turnaround.

While confidence in the power of the Financial Reform Bill to jumpstart the economy wanes, CFOs do think the Economic Stimulus Act has been helpful to their business. Their favorite provision:  the consumer tax incentives and Make Work Pay provisions. Other elements of the Act that retail CFOs support: corporate tax incentives (25%), bonus depreciation (22%) and increased deduction limits for asset write-off provisions (15%).
Looking to the rest of 2010, retailers still cite unemployment as the linchpin to improving consumer confidence. Personal credit availability and debt levels are more of a concern than in last year’s survey.  However, concerns about the weak housing market dropped significantly: only 4% cite is as a concern, down from 20% in 2009 and 28% in 2008. Industries, like retail, that hire temporary workers around the holidays might be giving themselves an added bonus by spiking the unemployment rate and giving people additional cash to spend in stores.

While a double-dip recession seems doubtful, it will take more than holiday temp workers to spur unemployment. Consumers need more cash in their pockets in order to feel comfortable spending it.

Do you think we are in for a double dip recession? What do you think will spur consumer confidence in the coming quarter?

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