The U.S. economy continues to grow, even as labor disputes across the country and uncertainty created by Congress add to the ongoing challenges of inflation and high interest rates, NRF Chief Economist Jack Kleinhenz said today.
“As Gilda Radner used to say on Saturday Night Live, ‘If it’s not one, it’s the other,'” Kleinhenz said. “This is certainly one of those moments where that phrase fits well with what’s going on in the economy.”
“New turmoil from the widening autoworker strike and the threat of a government shutdown — which could still occur even after Congress’s short-term funding measure expires — have added to the headwinds already facing the economy,” Kleinhenz said. “Despite this, the economy continues to move forward and defy recession forecasts, proving it is more resilient than expected.”
Adding to the new challenges are interest rates that are at their highest levels in two decades, gasoline prices that have been rising since mid-summer, inflation still stuck in households, declining consumer sentiment and the resumption of student loan payments.
Kleinhenz’s comments came in the October issue of the NRF’s Monthly Economic Review, which said the final 2.1% increase in gross domestic product reported by the Bureau of Economic Analysis for the second quarter came even after revisions that indicated lower consumer spending on goods and services reflected than originally estimated. Consumer spending rose just 1.8% year-on-year in inflation-adjusted terms, instead of the original estimate of 2.3%, as spending on services such as home services and vehicle maintenance was revised downward, along with spending on goods such as home furnishings, appliances and clothing.
“While the data shows continued economic growth, the weaker growth reflected in the GDP revisions suggests that higher interest rates and tighter lending standards are working more thoroughly than previously thought,” Kleinhenz said. “Because higher interest rates typically slow the economy, the Federal Reserve is most likely pleased that higher interest rates are having an impact on employment, economic output and corporate results.”
High inflation and interest rates are “clouding the outlook for many households” and consumer confidence fell for a second straight month in September, the report said. The Conference Board consumer confidence index fell 5.7 points to 103 and the University of Michigan consumer confidence index fell to 68.1 from its already low August reading of 69.5 as oil and gas prices continued to rise.
Still, low consumer confidence did not translate into weaker spending. In August, spending rose 5.8% year-on-year, which corresponds to a 7.3% increase in disposable income. The increase came even as the personal consumption expenditures price index – the Fed’s preferred measure of inflation – rose 0.4% in August from July and 3.5% year over year.
Incoming data suggests that the just-ended third quarter was largely in line with the second quarter and that there could still be a “soft landing” rather than a recession in 2023, Kleinhenz said. For example: “As the Fed looks to see job growth slow without the unemployment rate rising, a number of indicators suggest that tight labor market conditions are cooling – but in the right way.”
187,000 nonfarm jobs were added in August, up from 157,000 in July but far less than the average monthly gain of 271,000 last year. Meanwhile, the unemployment rate rose 0.3 percentage points to 3.8% in August as more people looked for work.
After falling for three straight months through July, job vacancies rose from 8.9 million in July to 9.6 million in August, but were well below the 10.2 million a year earlier. The number of new hires rose slightly from 5.82 million in July to 5.86 million, but was again below the 6.5 million in the previous year. The number of separations, including layoffs, remained essentially flat in August, declining after a small increase earlier in the year. Unemployment insurance claims remain at historic lows and there are no signs of an increase in layoffs, which would be a clear signal of an impending recession.
As the retail industry’s leading authority and voice, NRF analyzes the economic conditions impacting the industry through reports such as the Monthly Economic Review.
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