Aftermarket Retail Forecast 2024

Shops can expect to navigate tricky economic terrain...

This article originally appeared in the January 2024 issue of THE SHOP magazine.

Fasten your seat belts and enjoy the ride.

Like airline travelers bracing for expected turbulence, retailers are preparing for a tricky operating environment in 2024.

On the plus side, the economy will continue to grow, although at a slower pace. Shoppers and business owners are feeling fairly optimistic as unemployment remains low, capital investments are plugging along at a healthy pace, and the all-important housing market is burgeoning.

Throwing cold water on the good times, however, is a significant downer that no one can control: Higher interest rates established by the Federal Reserve to control inflation are putting some downward pressure on business activity and shoppers’ buying habits.

Economists are taking note by lowering expectations for the next 12 months.

“The coming year will continue to be a difficult environment for retailers,” says Scott Hoyt, senior director of consumer economics for Moody’s Analytics (economy.com). “We’re expecting 2.5% retail sales growth for 2024, slower than the 4.7% growth expected when 2023 numbers are finalized.”

When adjusted for inflation, he notes, retail sales are expected to be flat for both years.

The slowdown comes on the heels of a healthy 9.3% retail sales increase clocked for 2022, a time when pandemic-era shoppers were still loading up on goods for the home. Those days are gone, and retailers should expect shoppers to continue to spend more on services rather than merchandise.

Hoyt feels that spending on categories such as recreation, travel and entertainment is still below pre-pandemic levels.

“I think we have another year in which the shift toward services is going to be something retailers need to deal with.”


Retail’s current position reflects a deceleration in the larger business environment.

“We expect real GDP to grow 1.4% in 2024,” says Bernard Yaros, Jr., assistant director and economist at Moody’s Analytics.

That’s slower than the 2.1% increase expected when 2023 numbers are finally tallied, and below the 2-3% considered emblematic of normal business growth.

(Gross Domestic Product, the total value of the nation’s goods and services, is the most commonly accepted measurement of economic growth. “Real” GDP adjusts for inflation.)

Slowing commercial activity will affect bottom lines. Moody’s Analytics expected a decline of 4.5% in corporate profits for 2023 and only a modest recovery of 0.3% in 2024.

Reports from the field confirm the economists’ readings.

“Our members are experiencing a business slowdown, due largely to the effect of increasing interest rates,” says Tom Palisin, executive director of The Manufacturers’ Association, a York, Pennsylvania-based regional employers’ group with more than 370 member companies (mascpa.org).

While businesses understand the need for higher interest rates, they nevertheless hope for early relief.

“If inflation does not continue to drop, interest rates will have to be increased further, which will be a big problem,” Palisin predicts.

Are the Federal Reserve’s efforts paying off? There’s some good news there, as well as a sunny forecast. Moody’s Analytics expects year-over-year consumer price inflation to average 3.2% when 2023 numbers are finalized, down from over 6% a year earlier.

Moreover, the number should continue to drop until it reaches the Fed’s target rate of 2% late in 2024. (These figures represent the “core personal consumption expenditure deflator (PCED),” which strips out food and energy prices and is the Federal Reserve’s preferred measure of inflation.)

Indeed, Moody’s Analytics believes the Fed will start to lower interest rates around June of this year, although more slowly than previously anticipated because of persistent inflation and ongoing labor market tightness. Cuts of about 25 basis points per quarter are expected over the next few years until the Federal Funds Rate reaches 2.75% by the fourth quarter of 2026 and 2.5% in 2027.

For retailers, declining inflation is a double-edged sword. On the plus side, it encourages shoppers to spend more. On the negative side, it gives retailers less power to raise prices.

And, once inflation is taken into consideration, retail sales are expected to be virtually flat for both 2023 and 2024.


Shoppers will open their wallets sooner when they feel good. And they seem to feel basically positive about the future at the moment.

“Consumer confidence has been trending higher, and I think prospects are good for it to improve this year,” says Hoyt. “Things should normalize as the economy continues to grow and gas prices stabilize.”

The healthy state of the job market is a major driver of consumer confidence.

“The unemployment rate has been very low, bouncing around between 3.5-3.8% for some time,” says Hoyt.

A slowdown in job growth orchestrated by the Federal Reserve’s interest rate hikes should moderate things.

“We think unemployment will trend upward a bit, ending 2023 around 3.9% and 2024 around 4.2%.” (Many economists peg an unemployment rate of 3.5-4.5% as the “sweet spot” that balances the risks of wage escalation and economic recession.)

Low unemployment may fuel happy sentiments among workers, but it presents retailers with two practical challenges. The first is the need to raise wages to attract sufficient workers.

“Wage and salary income growth has been strong, fueled by a tight labor market,” Hoyt notes. “We’re expecting it to increase just a shade over 5% both for 2023 and 2024.”

In 2022 the growth was a little over 8%.

Reinforcing the estimates of the economists, Palisin says his members have had to hike their compensation to remain competitive among themselves and other economic sectors. The group’s entry level hourly wages increased an eye-popping 8-10% in both 2022 and 2023, far higher than the historic average of 2.5-3.0%.

Problem No. 2 is a scarcity of workers. An inability to hire enough people—particularly of the skilled variety—can affect the bottom line.

Two problems contributing to a labor shortage are the retirement of baby boomers and a post-pandemic reordering of life goals by many people.

“Some demographic structural things happening in the U.S. mean we just don’t have, in many cases, the number of workers needed to meet demand,” Palisin says. “That’s not going to change.”

It’s little wonder then that employers are turning their attention to retaining the talent they have.


Given the generally upbeat consumer sentiment, prospects are good for the housing sector. That favors retailers since home buyers tend to load up their shopping carts at stores.

“New home sales are running at the top end of the range set in the decade preceding the pandemic,” says Yaros. “One reason is that a lack of existing inventory is pushing buyers to consider new homes. The construction industry is stepping in to close the gap, and housing starts have exceeded expectations.”

New home construction is being fueled by a cold, hard fact: There aren’t enough existing homes to meet demand.

“The 3.1 months’ supply of existing homes remains well below the four to six months of inventory that is considered a balanced housing market,” notes Yaros.

Strong demand caused a 10.3% increase in the median price for existing homes in 2022, and a 0.6% increase in 2023. A correction of 1.1% is expected in 2024.

For an explanation of the scarcity, look no further than the run-up in mortgage rates. The ultra-low interest rates of existing mortgages amount to a strong financial incentive for existing homeowners to stay put.

“Current homeowners had refinanced their investments at 3% or 4%,” notes Bill Conerly, principal of his own consulting firm in Lake Oswego, Oregon (conerlyconsulting.com). “Replacing what they had with better homes would require walking away from those mortgages to take on new ones at 7%. I think we’ll see this trend continue for another year, but I think we’ll also see a lot of strength in remodeling, and that will be financed probably with home equity lending or second mortgages.”


High interest rates, an inflationary environment and rising worker wages—a trilogy of challenges that in normal times would dampen business confidence. And there are other threats to corporate well-being, such as high energy costs resulting from the Russia-Ukraine war and an appreciation in the U.S. dollar that hampers export activity.

Despite all this, companies don’t seem to be planning any dramatic adjustments to their operations, in marked contrast to their cautious attitude of a year earlier.

“While our members have moderated their expectations for the future, they are still feeling slightly positive,” says Palisin. “One reason is that we seem to have avoided the recession that many were predicting.”

Moody’s Analytics believes that the nation will avoid a recession in 2024, attributing its forecast of a soft landing to resilient labor markets and confident consumers.

Businesses looking to borrow funds to fuel capital investments, though, had best prepare for a tougher negotiating environment.

“The banking sector is in retrenchment and lenders are becoming more risk averse,” says Anirban Basu, chairman and CEO of Sage Policy Group (sagepolicy.com). “As a result, developers are having more difficulty lining up financing.”

Fueling the concern among financial institutions is a recent spate of loan delinquencies and bankruptcies. Banks are looking at their portfolios and seeing where they can tighten up. Companies holding inexpensive pre-pandemic loans will see an earnings hit when they need to refinance at 6-7%.


In the opening months of 2024, Hoyt suggests retailers look at employment levels to get an early read on how the year will go.

“The first thing retailers should always watch is the state of the labor market, especially with job growth slowing,” he says. “An increasing number of analysts think the Fed can pull off their mission of getting job growth to slow but not stop. That’s vitally important for retailers because consumers need job growth to have the income growth that results in retail sales growth.”

The second important key indicator—always near the top for specialty aftermarket retailers—are trends in oil and gasoline prices.

“If fuel prices stay in their recent range, that’s good news for retailers,” Hoyt continues. “If they spike again, which is not inconceivable given everything going on in Russia and the Middle East and elsewhere in the oil producing world, that would be a severe problem for retailers because it would force consumers to spend more of their budgets on energy and less on goods.”

Whatever the condition of the tea leaves, retailers will encounter a tougher overall operating environment in 2024.

“In the coming year we will face uncertainty about inflation and interest rates, shortages of labor, higher energy costs, a slowdown in China’s economy, and recurring threats of a federal government shutdown,” Palisin predicts. “There are a lot of spinning plates in the air, and some of them may fall and crack.”

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