My firm is an avid subscriber of the monthly ITR Trends Report ® written by the dynamic duo of Alan and Brian Bealieu, both PhD’s in Economics and frequent speakers at pet industry events. Recently the subject was retail sales. Although the news wasn’t great, I felt it would be very valuable for me to share the “in a nutshell” summary so you can incorporate the news into your planning and strategy for the rest of 2012 and beyond.

Retail Sales (adjusted for inflation) are in a trend of decelerating rise through mid 2012. The fact that the data trend is rising is important, but so is the reality that the rate of ascent is diminishing. There must be some re-acceleration in the rising trend if we are going to see some improved growth for the overall economy in 2012.

Total Retail Sales are up 2.0% through the last 12 months adjusted for inflation. While clearly better than during the recession when the year-over-year comparison went negative, the current pace isn’t enough to ensure that the economy can sustain 2011’s growth rate, let alone surpass it (which some leading indicators are suggesting). In the ITR Trends Report, they use Retail Sales Excluding Automobiles measured in deflated dollars as a means of measuring the health of the retail sales trend. The latest quarterly comparison to one year ago is an increase of 1.1% but in order for the economy to gain momentum, we need the rate-of-change to rise to a level of at least 1.5%.

Results through early 2012 are running below their forecast. Disposable Personal Income (after tax income) is simply not rising fast enough to give us the ascent in Retail Sales that we need. Disposable Personal Income is averaging a mild 0.6% year-over-year increase for the last three months. The average gain in Disposable Personal Income since January 2000 is 2.6% (3/12 – last 3 months out of twelve – rate-of-change). The current 0.6% rise should keep us out of a downturn, but we need faster rise to give the economy a boost toward faster growth.

Fortunately, raising payroll taxes was recently avoided; ITR say fortunate because the increase in taxes would have meant a further weakening in the Disposable Personal Income trend. This is an example of how raising taxes at the wrong time in the business cycle upon the wrong economic activity would have been detrimental to the goal of business cycle rise in the economy.

ITR lowered their forecast for Retail Sales (Excluding Automobiles) for 2012 to a 1.8% increase (down from 3.3% previously). They are projecting that the 3/12 (currently at 1.1%) will improve to the “necessary” 1.5% level by mid-year and that it will rise further after that, staying above 2.0% through March 2013. These numbers aren’t great, but they are good enough to support a forecast of economic growth. ITR thinks the improvement will stem from the ongoing rising trend in employment, some modest wage increases, and a weakening consumer price inflationary trend in the middle quarters of 2012. Post-2012, they are projecting that the year-over-year ascent in Retail Sales Excluding Automobiles will diminish to 1.3% for 2013 as a whole.

The Beaulieus aren’t expecting the U.S. economy to be heading into 2013 in great shape, as evidenced by the above forecast. It wouldn’t take much for the Retail Sales rising trend to falter based on factors like rising taxes in 2013 or inflation in some ubiquitous commodity such as food or gasoline. However, for at least the last three years, they’ve listed the pet industry as one of the Top 10 Industries to Watch and I suspect that we will weather these challenges a little better then other retail segments.