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New York, September 25, 2003 — Forget Scrooge ruining the 2003 holiday season. Buoyed by a much-improved business environment, consumer businesses should record their best profits in recent memory in the Thanksgiving-to-New Year shopping period, predicts Deloitte Research Chief Economist Carl Steidtmann in "Coming soon: The Millennium's Best Holiday Season! (So far)," a Deloitte Research Economic Report.

Dr. Steidtmann anticipates that non-auto retail sales this holiday season in the U.S. will rise 6.5% to 7% with outlays for general merchandise, apparel and furniture climbing even higher. That contrasts with a 4.2% rise in 2002 and would be the best holiday sales performance since 1999's strong 9.2% climb.

"The economy stands poised to deliver one of the best holiday seasons of the past 10 years and, most certainly, the best holiday season of this new millennium," says Steidtmann.

Echoing Deloitte Research's expectations, Tara Weiner, National Managing Partner of Deloitte's Consumer Business practice, expects consumers to loosen their purse strings this holiday season and believes they are already beginning to do so. She says early signs indicate that online shopping, sales at discount stores and purchases with cashless payment vehicles such as gift cards will be especially strong.

"Improving economic fundamentals indicate Americans are in a good position to spend this holiday season," Weiner says. "And as those business barometers continue to rise, they should translate into stronger retail sales in the fourth quarter, especially for discount stores, which consumers continue to frequent in increasing numbers regardless of income bracket. And if back-to-school is any indication, expect strong apparel sales as well."

Deloitte will address these consumer trends when the firm releases the results of its Eighteenth Annual Holiday Mood Survey in mid-October. Each year the firm surveys approximately 13,000 consumers to gather insights on trends in consumer spending during the holiday shopping season. The survey asks consumers what, where, when and how much holiday shopping they are planning, as well as their overall mood around this time.

For his part, Steidtmann expects retail profits to benefit from enhanced sales growth coupled with tight inventory and cost controls. He cites several factors for the bright holiday outlook, including:

• The recent federal tax cut, the third in as many years, which should add another $50 billion to consumer cash flow before year-end 2003. Another tax reduction next spring in the form of higher-than-expected tax refunds signals a further healthy pickup in consumer spending.
• Low interest rates, which have fueled both a housing and mortgage-refinancing boom that, in turn, have increased consumer liquidity.
• A rising value of the U.S. dollar against the Euro, which increases the purchasing power of U.S. consumers.
• Rebounding stock prices since the Iraq war began, a sign of stronger economic growth ahead.
• Nearly record-low retail inventories, which point to lower costs and less-aggressive discounting this holiday season, a combination that should help boost profits.
• Lean retail payrolls and strong profitability growth that have combined to keep total employment costs for retailers to an increase of less than 1% from a year ago.

"The combination of faster top-line growth, higher inventory productivity, lower employment costs and a little margin discipline has retailers poised to grow profitability at a pace not seen since the mid-1990s," says Steidtmann. "Expect a gain of 20% or more over the next year."

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