The Big Picture

There They Go Again: NRF Redux

Friday, July 28, 2006 | 05:20 AM

in Consumer Spending | Data Analysis | Economy | Retail

I nearly spit out my iced coffee when I saw this cross the tape:

"With record temperatures across the nation making headlines, many parents are already preparing their back-to-school shopping lists and thinking ahead to fall. According to the National Retail Federation’s (NRF) 2006 Back-to-School Consumer Intentions and Actions Survey, conducted by BIGresearch, families with school-aged children will be spending more on back-to-school shopping this year than last, with the average family spending $527.08, up from $443.77 in 2005. Total spending is estimated to reach $17.6 billion, up from $13.4 billion last year."

That's right -- the NRF is once again forecasting a big increase in sales based on their survey. For the back to school season, that's a 31% back-to-school spending increase in 2006 versus 2005, and an 18.8% increase per family.

I don't know what they are smoking at the National Retail Federation, but I have a suspicion it was grown in the hills of Northern California.

In case you forgot, for the holiday season in 2005, the NRR trumpeted Thanksgiving weekend sales as “blockbuster;” They received glowing media reports of sales having “surged 22% from a year ago to about $27.9 billion.” In actuality, the gains over the holiday sale season in 2005 were a mere 3.5%.

The track record of the National Retail Federation at forecasting actual sales has been awful. After the debacle that was their '05 holiday season forecasts, the media seems to have wised up to their cheerleading.

The largest part of the problem is their methodology: They poll 9000 or so people, asking them what they intend to buy, and how much they plan on spending. They do not look at any actual retail sales data, reciepts, etc.

Polling is fine for certain things, but it has its limitations. If you want to determine what people think or feel or believe -- that's fine. However, its not a particularly good way to determine future behavior. As we have seen, people are rather poor forecasters of their own future actions. We've seen this repeatedly over the years; the most recent misleading surveys have been in the CEO CapEx and hiring forecast. They tend towards being much more optimistic about ramping up spending and new head count then they subsequently are.

Spending may increase or decrease somewhat, but given that gasoline prices have topped $3 gallon, and is hitting 25-year highs, I doubt very much we will see an 18.8% family spending increase, or a 31% increase in total sales.

Annual Spending, Back to School Season

Sources:
Don’t Believe the Hype: A Very Mixed Retail Picture
Monday, November 28, 2005 http://bigpicture.typepad.com/comments/2005/11/dont_believe_th.html

Gasoline prices top $3 gallon, hit 25-year high
Reuters, Sun Jul 23, 2006 4:21pm ET
http://tinyurl.com/hadsh

Electronics and Apparel to Fuel Back-to-School Spending,
According to Latest NRF Survey
-Total spending expected to reach $17.6 billion-
NRF Press release, July 18, 2006
http://tinyurl.com/qxse9

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Comments

Ha! Yeah, that's funny stuff. As a parent of two toddlers, we've bought some backpacks (a.k.a. 'non'-durable goods), crayons, and colored pencils. I'd say we're done! We're already thinking about how it might be a tight Christmas.
One only needs to look at the retail index to see the truth:

http://stockcharts.com/h-sc/ui?s=RTH&p=D&yr=2&mn=0&dy=0&id=0

Posted by: FliteTime | Jul 28, 2006 6:55:42 AM

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