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The US Economy on the Move: Insights From NRF Chief Economist
In a recent post, the National Retail Federation’s (NRF) Chief Economist Jack Kleinhenz provides valuable insights into the current state and future trajectory of the U.S. economy. With the economic landscape evolving rapidly, understanding the factors driving growth and consumer behavior is crucial. This summary provides a concise overview, highlighting key points made by the NRF chief economist.
US Economic Recovery and Growth
The NRF chief economist asserts that the U.S. economy is on a positive trajectory and is steadily moving forward. He highlights the resilience demonstrated by businesses and consumers in the face of challenging times. Factors such as pent-up demand, increased savings during the pandemic, and improved employment prospects have allowed shoppers to spend money.
Jack Kleinhenz also notes that consumer spending “accounts for 70% of U.S. GDP and grew at a 4.2% annual rate despite the strong headwinds of high interest rates and elevated inflation.” This was the fastest growth since mid-2021 and four times the 1% growth in the fourth quarter of 2022.
Additionally, “The resiliency of the U.S. consumer will be tested in the coming months as headwinds from higher interest rates signaled by the Fed, tighter credit conditions and the resumption of student loan payments are likely to impair spending,” Kleinhenz said. Nonetheless, $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.”
Inflation Challenges
According to Kleinhenz, revised data from the Bureau of Economic Analysis now shows that “first-quarter gross domestic product grew at an annual rate of 2% adjusted for inflation rather than the 1.1% originally reported.”
The Federal Reserve is closely monitoring the situation and remains committed to maintaining price stability and full employment. They left interest rates unchanged, a first within the last 10 months, giving them more time to focus on how recent inflation is affecting Americans.
The majority of the committee also adds that they expect to introduce two more rate increases within the next few months. Others warn that up to four more increases are possible, while only two members believe that rates will remain the same.
“Meanwhile, inflation remains elevated but is slowing and taking pressure off the American household,” Kleinhenz noted. “The Federal’s preferred measure of inflation, the Personal Consumption Expenditures Price Index, was up 3.8% year over year in May, the first time it had been below 4% since early 2021 and a considerable improvement both from April’s 4.3% and the peak of almost 7% in mid-2022. Core services, including housing prices, have been the primary driver of inflation in 2023 and remained stubbornly high at 5.3%.”
Despite the reduction, Kleinhenz believes that continued increases in consumer spending could potentially prompt the Fed to increase interest rates further as it attempts to slow inflation to its target of 2%.
Conclusion
The NRF chief economist’s remarks offer valuable insights into the state of the U.S. economy and provide an optimistic perspective on its forward trajectory. While acknowledging supply chain challenges and inflationary pressures, the article emphasizes the resilience of businesses and consumers in driving economic recovery. It also highlights the labor market dynamics and the need for innovative solutions.
Overall, Jack Kleinhenz’s analysis of the U.S. economy provides an optimistic outlook for the retail sector, citing increased consumer spending, strong e-commerce growth, and the reopening of physical stores as catalysts for recovery. With this information, businesses and policymakers will benefit from increased awareness while navigating the evolving economic landscape.
Discussion Questions
DISCUSSION QUESTIONS: In what ways can retailers help to keep consumers spending? Do you think the economy can rely on people’s savings, especially if inflation and cost of living increases?
Poll
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Retailers should continue to offer compelling product assortments and promotions that drive traffic into stores. Though Mr. Kleinhenz’s outlook appears optimistic, the average consumer is still feeling the effects of higher prices in food, beverage and energy, which is biting into discretionary spending. Additionally, his point about consumer savings is fair, but I wouldn’t bank on this to spur economic growth.
Building in as much flexibility as possible will be essential for retailers. While economic outlooks may be optimistic, many factors are still in the wind. Being able to maintain connection to customers across both online and offline channels and the ability to shift quickly ( like shifting from Twitter to Threads) is key. We are navigating uncertainty on every front – politics, climate, wars impacting supply chain, AI, and more. Optimism should be colored heavily with common sense.
Except for inflation, the economic data has been good. While the media’s headlines caused much handwringing, the underlying statistics were telling a different story.
Hopefully, the economy doesn’t rely on personal savings. If the number is correct, it is good for the economy. Keep your money, people. Personal savings are running at an all-time high of about 4.0%. (In the EU, the personal savings rate averages about 12%)
I hope Mr. K is correct with the 2% growth forecast. That would be spectacular.
Good retailers should keep doing what they are doing, and the sales will care for themselves.
The inflation rate might be easing, but prices are still rising off the back of a long period of hefty increases. This remains pressure on households remains. For example, food inflation increased by ‘only’ 4.7% in June. However, compared to 2019, food prices are up by a whopping 25.2%. The translates to a $1,117 increase in the average annual household bill for food at home. This context cannot be ignored as it’s why people are maintaining certain behaviors: cutting volumes, seeking discounts. And it’s why retail margins remain under pressure. This is not trying to be gloomy, it’s just injecting some reality into the NRF’s saccharine outlook.
This.
While there was a decrease in inflation, cost increases are still occurring on a more frequent basis than normal from a retailer’s perspective.
Personal incomes have not increased , and to Neil’s point- people are still holding on to their money and limiting discretionary spending.
While the future might seem rosy, the reality is many consumers are in a hole, and retailers have to continue to make investments to keep attracting customers.
While optimism is in the air about the economy, and the KPIs all indicate that we are heading in the right direction, the consumer is continuing to feel the inflationary pressures and balancing their budgets. Additionally, the impacts of long-term unemployment should be shown in the economic statistics. Consumers are coping with less discretionary income and making decisions and tradeoffs in this economy.
This is a prime opportunity for retailers and grocers to provide value-centric products and ramp up the promotional cycles. In the age of conscious consumerism, shoppers are far more purposeful with their shopping decisions. By offering a good balance of promotional items, and compelling private-label offerings, retailers could extend some goodwill to consumers impacted by the long-term impacts of inflation.
Retailers and brands must engage with consumers across physical and digital channels to offer the value and savings they seek. This strategy will pay dividends for retailers and consumers, leading to a long-term relationship.
They can focus on pricing. The “big” items in the CPI are starting to be “under control” but the easy to over look items (mustard, chips, etc.) are still expensive relative to levels from a year or so ago.
And no, I do not think people’s savings can be relied on! I wish I were more optimistic here!