NRF: Economy slowing, but recession unlikely — in ‘near term’

The good news for retailers is that the nation is unlikely to enter into a recession during the remainder of 2022.

That’s according to National Retail Federation chief economist Jack Kleinhenz, who said that the U.S. economy’s rate of growth is slowing, but consumers remain financially healthy. He noted that while economic data is “softer than a few months ago,” it “still signals further solid economic growth.”

“I am not betting on an official recession in the near term, but the most recent research pegs the risk over the next year as about one in three and it will be touch and go in 2023,” Kleinhenz said. “In the meantime, a contracting economy short of a recession is not out of the question.”

Regardless of the prospect of a downturn or whether it will meet the threshold of a recession, the consumer outlook over the next few months remains favorable, Kleinhenz noted.

“The economy is moving away from extremely strong growth toward moderate growth, but increased income from employment gains, rising wages and more hours worked is expected to support household spending,” he said. “Policy issues will likely be the deciding factor shaping the economic outlook this year and next.”

Kleinhenz’s remarks came in the July issue of NRF’s Monthly Economic Review.

Job openings and quit rates suggest that the labor market remains tight, payroll growth remains sturdy despite a slowdown in May, and the unemployment rate has remained at 3.6% – just above a 50-year low seen before the pandemic – for three months in a row, according to the report. A closely watched survey of manufacturing from the Institute of Supply Management showed that suppliers’ deliveries had improved in May as demand, orders and order backlogs grew at an improved pace.

Retail sales as calculated by NRF — which exclude automobile dealers, gas stations and restaurants — in May were flat with April, when they inched up 0.4% month-over-month and grew 6.7% year over year. Sales were up 7.3% for the first five months of the year compared with 2021.

As COVID-19 eases, consumers are rebalancing their spending and adjusting shopping habits. Restaurant sales, which serve as a proxy for other service sectors like recreation and transportation that are on the upswing, were up 0.7% monthly in May and 17.5% year over year. Airline traffic is up, with the number of passengers screened at airports in the first half of June only 12.5% below June 2019.