2014 Forecast Gives C-stores a Reason to be Optimistic

2014 Forecast Gives C-stores a Reason to be Optimistic 

By Don Longo

NATIONAL REPORT — With an improving labor picture, the national economy as measured by the Gross Domestic Product (GDP) is projected to grow “in the high 2 or low 3 [percent]” range next year, according to Convenience Store News’ Consulting Economist Maureen Maguire, president of ThinkResearch and chief analyst for the annual CSNews Industry Forecast Study.

A good point of estimate for 2014 would be 3 percent. That would be a slight improvement over the estimated 2.1-percent growth in GDP in 2013. The economy grew a very strong 3.6 percent in the third quarter, driven mostly by inventor building that was responsible for nudging up 2013 GDP by one-tenth of a percentage point.

“A 3-handle will be nice for 2014, but it depends largely on how confident the consumer is given all the risk and uncertainty in the market and general economic environment,” added Maguire, who last year forecasted a 2.3-percent gain in GDP for 2013.

Of all the various economic indicators, the unemployment rate is going to be the best barometer of consumer health in 2014, according to Maguire and several convenience store retailers interviewed by CSNews. The unemployment rate in 2011 was 8.9 percent, followed by 8.15 percent in 2012 and an estimated 7.5 percent in 2013. Surprisingly, the rate in November came in at 7 percent, exceeding most forecasters’ expectations. The labor market is poised to add jobs at a stronger rate next year than in 2013 and support a continued drop in unemployment.

Other factors expected to have a big impact on sales next year are fuel prices and the weather.

“If fuel prices stay below $4 per gallon, we should see good growth,” one retailer predicted.

Another retailer noted that 2012 was “a picture-perfect weather year” for the c-store industry, while 2013 was beset by storms and unfriendly weather conditions. “If 2014 falls somewhere in between those two extremes, we should see good growth,” he said.

The recent improvement in the labor picture likely contributed to the Federal Reserve’s decision this week to slow down its bond-buying program sooner than many analysts expected. Although the Fed said it is reducing the amount of bond purchases by $10 billion per month, it also said it plans to hold short-term interest rates neat zero “well past” the time when unemployment falls below 6.5 percent.

This year, the economy faced lots of difficult circumstances. Taxes increased with the reinstatement of the payroll tax at the beginning of the year. The euro zone worsened and China’s economic growth slowed. Plus, in mid-summer, fears that the Fed would begin tapering off on feeding the money supply touched off an increase in interest rates that threatened to cut off the slowly recovering housing market.

A number of factors feed into Maguire’s more upbeat outlook for 2014:

Housing is poised to continue to recover. The number of new homes needed to keep in step with household formations is low, so homebuilders are waiting for some stronger signals before they start building again.

Inflation is low, which helps to keep interest rates low. There is slack caused by previous weak demand, removing the threat of inflation.

The equity market did very well last year, which contributed to the “wealth effect.” Increased household wealth spurs consumer spending.

Auto sales look good, helped by low interest rates and easy financing.

Food prices have been flat for the last year after peaking at the end of 2011 and trending downward after that.

Consumer household debt is rising again from historically low levels when consumer debt declined sharply during the recession. It is currently trending at historical norms. Delinquency rates are extremely low and consumer bankruptcy rates are continuing to decline.

The federal deficit as a percentage of GDP has been trending down after peaking in 2009. Given the current stalemate in Congress, the deficit should continue to trend down.

Looking at retail sales, Maguire noted that beer, wine and liquor stores have been trending upward for the past two years. “Retail sales for 2013 were good, but not great,” she said. “Going forward, 2014 will be stronger than 2013 and a welcome relief to the past several years of lackluster growth.”

Along with providing the overall U.S. economic outlook, the CSNews Forecast Study formulates individual forecasts for the product categories of most importance to c-store retailers.

Source: Convenience Store News December 2013

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