NRF Top Economist Says Recession Unlikely In 2022

With many concerned about the health of the U.S. economy, the National Retail Federation’s (NRF) chief economist continues to say that a recession this year is unlikely.

“Back-to-back contractions have heightened fear of a recession, but while the economy has lost momentum heading into the second half of the year, economic data is not yet consistent with a typical recession,” said Jack Kleinhenz, the NRF’s chief economist. “Despite two consecutive quarters of decline, the U.S. economy still does not appear to be in a recession and remains unlikely to enter one this year.”

Kleinhenz’s remarks came in the August issue of NRF’s Monthly Economic Review (MER), which noted that gross domestic product declined 1.6% year over year in the first quarter and 0.9% in the second quarter. Two consecutive quarters of decline is a common informal indicator of a recession, but the official declaration is up to the National Bureau of Economic Research, which defines a recession as a significant decline spread across the economy. The bureau has yet to rule on whether the current downturn meets that definition.

Even with two quarters of GDP decline, private final sales to domestic purchasers – a key measurement of both consumer and business spending – remained in positive territory for the first half of the year, up 3% in the first quarter and flat in the second, the MER report said. Other indicators including employment, retail sales, income and industrial production have seen slower growth, but none have contracted.

An important indicator that could signal the onset of a recession would be a significant downturn in employment, Kleinhenz said. But the unemployment rate stood at 3.6% in June, nearly half a percentage point lower than the beginning of the year and only slightly above the 50-year pre-pandemic low of 3.5% seen in January 2020. 

Meanwhile, payrolls grew at an average monthly rate of 539,000 in the first quarter and 375,000 in the second quarter. And retail sales as defined by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – were up 7% year over year in the first six months of the year.

Even though economic indicators remain strong, Kleinhenz said “it is now clear that the world has changed” since the beginning of the year, citing factors that could not be anticipated earlier including the persistence of COVID-19, continuing supply chain challenges, the ongoing war in Ukraine and other issues that have driven the highest inflation rates in 40 years.

He noted the key concern remains inflation and the Fed’s policy moves to try and contain it. 

“As the central bank attempts to adjust monetary policy, it faces the dangers of continued inflation if it doesn’t do enough and a recession if it goes too far,” he said. “Consumer reaction to interest rate hikes is hardly immediate or predictable, making it impossible to judge the effect of the Fed’s reactions in real time and quickly correct any oversteering.