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Clear Thinking Group Looks For Moderate Retail Sales Growth In 2nd Half

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The U.S. economy is showing signs of health, but will likely not be as strong as it was in 2004, causing GDP (gross domestic product) growth to slow to 3.1% in 2005 from last year’s 4.4%, predicts Clear Thinking Group, LLC, a retail/consumer products manufacturing consultancy headquartered here. In the economy’s retail sector, the firm looks for moderate growth during the second half of the year, with holiday season sales gains unable to match 2004 levels. “Consumer sentiment regarding the economy is growing stronger, while terrorism and difficulties in the Middle East have become less of a concern among Americans in recent months,” commented Lee A. Diercks, a partner and managing director of the Hillsborough, N.J.-based firm. “At the same time, job growth and productivity remain strong, with the unemployment rate, which stood at 5.2% in April 2005, now at its lowest point since September 11, 2001.” Meanwhile, inventory productivity continues at recent levels, and housing starts--fostered by growth in the replacement home and second home markets alike--continue at an unprecedented rate, the firm noted. “Oil prices have begun to decline,” Diercks added, “and interest rate increases will keep inflation in check.” Moreover, exporters may see some positive growth in the third and fourth quarters of the year following the passage of the Central American Free Trade Agreement (CAFTA), which is designed to remove tariffs and trade barriers between the U.S. and Central American nations. Those positive signs, however, are tempered by a number of negative factors. Diercks noted that despite declining crude prices, inadequate refining capacity can be expected to prevent average U.S. gasoline prices from dropping below $2 per gallon. What’s more, a shortage of materials and labor may actually push overall home starts to below the levels attained last year. “Additionally, baby boomer retirements are picking up steam, creating a shortage of employees in some sectors in various parts of the country,” he said. “Price increases, fuel costs and higher interest rates are keeping the economy from really charging ahead at this point.” “Despite those factors, the news is, quite clearly, good and we definitely see continued positive economic signs ahead,” Diercks concluded. As for the retail and consumer product marketplace, the firm predicts moderate growth for the third and fourth quarters of 2005. “All signs point to a conservative level of growth in most retail sectors, with the home electronics, home décor, and drug store sectors leading the way,” said Diercks, a veteran retailer who leads the firm’s Turnaround Management/Financial Services Practice Group. “Apparel sales have rebounded this spring and we see some strong signs that this trend should continue through the back-to- school season. While it is still early to predict what the holiday season looks like, we anticipate that growth will certainly not be at the level of last year’s 5.5% gain, with the increase more in the range of 4.0% to 4.5%.” About Clear Thinking Group Clear Thinking Group, LLC, provides a wide range of strategic consulting services to retail companies, consumer product manufacturers/distributors and industrial companies. The national advisory organization specializes in assisting small- to mid-sized companies during times of growth, opportunity, strategic change, acquisition, and crisis. For further information, visit the firm’s website at www.clearthinkinggrp.com.

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