NRF: Conditions look like soft landing, not recession
Retail group sees “kaleidoscope” of different signals, but says consumer spending outpaces confidence even as economy cools off.
The U.S. appears to be headed toward a soft landing from the rampant inflation and high interest rates of the past two years, and is on track to avoid a recession despite an array of conflicting economic signals, the National Retail Federation (NRF) said today.
“Today’s economy is a lot like looking into a kaleidoscope, with the view changing and the data providing a different reflection of what’s happening every time you look,” NRF Chief Economist Jack Kleinhenz said today in the June edition of NRF’s Monthly Economic Review. “Depending on which data you view in the economic kaleidoscope, you get two different angles on the state of the consumer. While survey data shows consumers do not have much confidence in the economy, actual spending data shows they were upbeat as the second quarter kicked off.”
Kleinhenz said the Federal Reserve’s increases in interest rates in an effort to control inflation have been slowing the economy but not so much as to tip it into recession.
“Consumer spending has been bolstered by a strong job market and rising wages, which have helped counter rising prices and higher borrowing costs,” Kleinhenz said. “While it’s difficult to reconcile these views, what we’ve learned over the last several years is don't count the American consumer out, at least not yet.”
The NRF report cited data showing that the economy is slowing down gently, pointing to a revised gross domestic product (GDP) growth of 1.1% annualized in the first quarter rather than the original estimate of 1.3%. Furthermore, the average of GDP and gross domestic income (GDI)—a measure of everything earned during production and often a bellwether of revisions to GDP – decreased 0.5% in the first quarter following a decrease of 0.4% in the fourth quarter. The report expects GDP to grow about 1% for the year.
“This suggests that GDP likely overstates U.S. economic growth and that higher interest rates, tighter credit, and persistent inflation are having more of a concerted effect on the direction of the economy than suggested by GDP alone,” Kleinhenz said, referring to the GDP-GDI average. “Given that, we continue to look for a soft landing this year.”