The economy continues to grow but not as fast as earlier in the year, according to National Retail Federation (NRF) Chief Economist Jack Kleinhenz. “The U.S. economy continues to expand, but recent data is signaling a slowdown in its momentum. The economy is slowing but not halting.
“Progress has been made on combating inflation, but higher prices remain,” Kleinhenz continued. “While consumers are still spending, the composition of their spending continues to favor services over retail goods, and, even then, there was less momentum going into the third quarter.”
Kleinhenz’s comments came in the September issue of NRF’s Monthly Economic Review, which said the Bureau of Economic Analysis estimates that gross domestic product grew at a 2.1 percent annual rate adjusted for inflation in the second quarter rather than the 2.4 percent reported earlier. Gross domestic income, which measures the value of wages, rent, interest, and corporate profits earned during production, rose by a more modest 0.5 percent annual rate. Averaged together, GDP and GDI were up 1.3 percent.
The economy added 187,000 jobs in August, up from 157,000 in July but well below the average monthly gain of 271,000 over the past year. The unemployment rate jumped 30 basis points to 3.8 percent in August as more people entered the labor market looking for jobs. Wages and salaries grew only 0.4 percent month-over-month in July, down from the 0.6 percent increase in June.
Despite the weaker-than-average job gains, slower wage growth and higher unemployment, personal spending increased 0.8 percent month-over-month in July, up from 0.6 percent growth in June.
With spending growth outpacing income growth, the savings rate dipped to 3.5 percent in July from 4.3 percent in June, “suggesting that consumers are digging into their finances to support household spending.”
“Consumer confidence took a bit of a hit in August as high prices and interest rates weighed on shoppers’ decisions,” Kleinhenz said. The Conference Board’s Consumer Confidence Index fell to 106.1 from July’s 114, while the University of Michigan Consumer Sentiment Index dropped from 71.6 in July—the best reading since October 2021—to 69.5 in August.
The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred measure of inflation, was up 0.2 percent month-over-month in July for the second month in a row. Year-over-year, PCE was up 3.3 percent compared with 3 percent in June.
Despite continuing inflation and reduced consumer confidence, retail sales as measured by NRF, excluding auto dealers, gas stations and restaurants to focus on core retail, “surprised to the upside” and rose 3.8 percent year-over-year in July. Sales got “a mid-summer boost” from Amazon’s Prime Day, special deal days offered by other retailers and entertainment-related events. But Kleinhenz said the number was partially lifted because of a comparison against low sales at the same time last year.
Spending on services, which has grown since pandemic restrictions ended and consumers returned to dining out, travel and entertainment, grew only 1.6 percent seasonally adjusted from the first quarter to the second quarter, down from 3 percent growth in the first quarter, according to the Census Bureau.
In March, the NRF forecasted that 2023 retail sales would increase between 4 percent and 6 percent over 2022. Since then, however, the Fed’s interest rate increases have slowed the economy, and “there is a good chance that sales will end up in the lower range of the forecast, if not lower,” Kleinhenz said.
To read the NRF’s Monthly Economic Review for August, go here.
