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Wage Gains, Construction and Corporate Profits Generate a Healthier Economy

The economic forecast calls for a healthier 2016 as a number of factors come together to fuel greater consumer and corporate confidence.

Phillip Perry

How will retailers — including those businesses that serve the commercial AV industry — fare in 2016? Very well, according to experienced market watchers. After several years of gradual improvement in the economy, the stars are aligning in favor of a more robust selling environment.

“We expect 2016 will be a good year, with increased consumer spending driving economic growth,” says Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics, a research firm based in West Chester, Pa.

Consumer-reaching sectors, in particular, are expected to benefit from the improving economic environment. “We expect core retail sales to grow 5.5 percent in 2016,” says Scott Hoyt, senior director of consumer economics for Moody’s. (Core retail sales exclude volatile revenues from auto sales and gas stations.) That’s notably faster than the 4.2 growth rate anticipated when 2015 sales are finally tallied. The 2015 experience was, again, slightly better than that the 3.9 percent growth of 2014.

If Moody’s is accurate, commercial integrators can rejoice, as the anticipated rate is not that far off the roughly 6 percent increases commonly enjoyed during the robust decade of the 1990s, as well as the fondly remembered period just prior to the Great Recession.

Wage Gains Leading Impact

What will drive the sales increases? The most important contributing factor is a healthier labor force. “Wage gains are now materializing across a number of industries and regions,” says Koropeckyj. That means consumers will have more disposable cash to buy merchandise.

The higher wages are fueled by the growing number of people gainfully employed, meaning healthier businesses in general. Moody’s says unemployment fell to 5.1 percent in late 2015, a full percentage point decline over the level 12 months previous and a rate nearly synonymous with the 5.0 percent economists believe represents a condition of “full employment.”

Read the Full 2016 CI: State of the Industry Report

“While there is still slack in the labor market, it is declining quickly,” says Hoyt. “At some point in 2016 the labor market should become tight which should translate into faster growth in wages and consumer spending.” Indeed, Moody’s expects the nation to reach full employment by mid-2016, and the average unemployment rate during the fourth quarter of that year to be 4.8 percent.

Gains in employment nationwide have helped create a population more confident of the future and therefore more prone to spend.”The consumer has been feeling reasonably well,” says Walter Simson, principal of Chatham, N.J.-based Ventor Consulting. “Baby boomers, especially, are feeling not too bad.” Consumer confidence should continue to rise over the coming 12 months in response to a brighter employment picture, according to Moody’s.

Other conditions also favor retailers: lower consumer debt; greater credit availability; trimmed gasoline prices. All should do their part to help fatten shoppers’ wallets over the coming 12 months.

Related: 4 Tricks to Getting a Great Loan Today

The growing strength in retail sales is part of a larger picture: the American economy is becoming more robust. Experts judge the health of the economy by measuring how much consumers and businesses spend on goods and services over the course of the year. The faster the rise in that figure, the Gross Domestic Product (GDP), the healthier the economy.

For 2016, Moody’s expects GDP to grow 3.25 percent. That’s considerably higher than the expected 2015 rate of 2.5 percent (which is, by the way, the American economy’s average historic growth rate over the years). The 2015 results, to be confirmed when the year’s sales numbers are finally calculated, were just slightly higher than 2014’s 2.43 percent growth rate.

Construction Rebound Helps

Retailers depend on a healthy economy to support strong sales. And one of the most important drivers of a healthy economy is a robust housing construction sector which employs more people, particularly contractors, and generates more disposable income.

“The ever-tightening market for new homes will likely spur stronger construction activity in 2016,” says Koropeckyj. Indeed, housing starts are expected to rise 29.5 percent for the year, a considerable improvement over the 14.5 percent figure expected for 2015 when final numbers are tallied. (The rate for 2014 was 5.8 percent).

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