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Economic conditions ‘still moving in right’ direction, says NRF economist

Consumer spending increased at an annual rate of 4.2% in the first quarter.

The “underlying strength” of the U.S. economy is keeping it moving forward.

That’s according to Jack Kleinhenz, chief economist of the National Retail Federation, who noted that the the U.S. economy did better in the first half of 2023 than early indicators suggested and appears to be “rolling forward” even as the rate of growth slows for the remainder of the year, according to Jack 

Indeed,  consumer spending – which makes up 70% of GDP – increased at an annual rate of 4.2% in the first quarter, which was four times the 1% growth in the fourth quarter of 2022 and the fastest growth since mid-2021 despite strong headwinds from interest rates and inflation.

“The first half of the year is over and the economy is still moving in the right direction,” Kleinhenz said. “While its rhythm, tone and pattern have slowed, it has not stalled and recently revised data shows underlying strength that seems to be rolling forward.”

The resiliency of the U.S. consumer, however, will be tested in the coming months as economic headwinds are likely to impair spending, Kleinhenz added.  But $500 billion in excess savings built up during the pandemic and continued employment growth mean consumers are “the path of least resistance to economic growth and are doing their part to keep the economy moving ahead,” he added.

Kleinhenz’s remarks came in the July issue of NRF’s Monthly Economic Review, which said revised data from the federal Bureau of Economic Analysis now shows that first-quarter gross domestic product adjusted for inflation grew 2% year over year rather than the 1.1% first reported. 

The personal savings rate has been revised upward to 4.3% from 3.4% and private final sales to domestic purchasers — which exclude inventories and imports to provide a good indicator of underlying growth —  were revised to 3.2% growth from 2.9%.

Unadjusted household spending was up only 0.1% month over month in May, compared with 0.6% in April, indicating that a slowdown can be expected when second-quarter results are released. Spending is slowly shifting from goods, which declined 0.5% in May, to services, which grew 0.4%. Retail sales as defined by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – were up 0.4% month over month in May but less than the 0.6% growth in April.

The Federal Reserve’s Open Market Committee last month left interest rates unchanged for the first time in 10 months, saying the pause would give time to assess the effect of the increases already adopted. But the majority of members of the committee said they expected two more rate increases in the coming months, with others predicting anywhere from one to four hikes. Only two of the 11 members expect rates to stay the same.

Meanwhile, inflation remains elevated but is easing and taking pressure off of households. The Personal Consumption Expenditures Price Index, which is the Fed’s preferred measure of inflation, showed prices were up 3.8% year over year in May. That was down from 4.3% in April and the first time inflation was under 4% since early 2021. 

 PCE inflation peaked at nearly 7% in mid-2022. Despite the reduction, continued increases in consumer spending could prompt the Fed to further increase interest rates as it tries to slow inflation to its target of 2%.


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