NRF: Consumer Spending Keeps Economy Moving Forward

With the U.S. gross domestic product (GDP) up a higher than expected 2.6% in the third quarter, the nation’s economy continues to be challenging to predict as consumer spending remains resolute despite inflationary pressures. 

Jack Kleinhenz, chief economist with the National Retail Federation, said the third quarter’s results “clearly dispelled” the notion that the U.S. economy is in a recession. The silver lining, he said, is the on-going resiliency in consumption.

“Nonetheless, the economy is cooling and interest-sensitive sectors, in particular, have seen a significant pullback,” Kleinhenz added. “GDP is expected to grow very gradually in the closing months of 2022, at best about half of what was recorded in the third quarter. Consumers are stepping back to a degree and changing how they allocate their resources. For those who have jobs and feel secure about their employment, spending will continue.”

Higher interest rates adopted by the Federal Reserve to slow inflation have driven up the cost of mortgages, making new homes unaffordable for many would-be buyers, Kleinhenz said in his Monthly Economic Review for the NRF. And spending on services is continuing to bounce back from the pandemic, causing a shift away from spending on retail goods.

Even with inflation, however, “the willingness to spend has been stable,” the NRF report said. Retail sales for the first 10 months of the year increased 7.5% year-over-year, on track to meet NRF’s forecasts that overall 2022 retail sales and November-December holiday sales will both grow between 6% and 8% over 2021. While the pace slowed to 6.5% in October, that was largely due to the comparison against strong early holiday shopping in 2021.

Year-over-year inflation as measured by the Consumer Price Index dropped from 8.2% in September to 7.7% in October, the lowest level since January. Average hourly earnings growth also slowed, to 4.7% year over year in October rather than 5% in September, reducing pressure on employers to raise prices. An additional 261,000 workers were added to payrolls in October, but that came after the number of job openings rose to 10.7 million in September from 10.3 million in August.