Sales for general merchandise, apparel, furniture, home furnishings, electronics, appliances, sporting goods, hobby, book and music stores will increase a scant 3.5 percent in 2005, according to a new report by the National Retail Federation (Washington).

By contrast, sales for the same categories grew 6.7 percent in 2004, the best showing since 1999.

While sales growth was 9.9 percent in the first quarter of 2004, NRF predicts sales growth will be a mere 3.7 percent for the first quarter of 2005.

“This year, consumers will be under increased financial pressure due to higher energy costs and slow wage growth,” said Rosalind Wells, NRF chief economist. “Additionally, past stimuli provided by tax cuts and very low interest rates will no longer be there to boost consumer spending.”

The labor market will profoundly impact the level of sales growth that retailers experience this year, according to the report.

“The consumer has been remarkable in shouldering this economic expansion, but now something has got to give,” Wells said. “The labor market will continue to expand this year, though our concern is that modest employment growth will lead to modest income growth, which will put a financial strain on consumers.”

NRF expects the luxury sector to thrive this year because high-income families are less affected by slow income growth and higher energy prices. According to Wells, the weaker dollar is increasing the demand for luxury purchases by tourists.

Discounters, on the other hand, will continue to be challenged because their core consumers are most affected by higher energy costs and slow income growth.

With membership that comprises all retail formats and channels of distribution, NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees—about one in five American workers—and 2004 sales of $4.1 trillion. As the industry umbrella group, it also represents more than 100 state, national and international retail associations. [March 2005 PET AGE]