Despite strong consumer spending, gross domestic product is unlikely to grow as much in the final months of 2022 as it did in the third quarter, National Retail Federation Chief Economist Jack Kleinhenz stated as part of NRF’s Monthly Economic Review, but he also noted that the evidence suggests that the country is not in a recession.
Kleinhenz pointed out that gross domestic product rose by 2.6% in the third quarter following declines of 1.6% in the first quarter and 6% in the second quarter.
Higher interest rates adopted by the United States Federal Reserve to slow inflation have driven up the cost of mortgages, making new homes unaffordable for many would-be buyers. But spending on services is bouncing back from its levels during the COVID-19 pandemic, causing a shift away from spending on retail goods.
Inflation as measured by the Consumer Price Index dropped from 8.2% in September to 7.7% in October year over year, the lowest level since January. At the same time, average hourly earnings growth slowed to 4.7% year over year in October versus 5% in September, reducing pressure on employers to raise prices. An additional 261,000 workers found jobs in October, but that came after the number of job openings rose to 10.7 million in September from 10.3 million in August.
“The third quarter’s results clearly dispelled the notion that the U.S. economy is in a recession, and the silver lining was the ongoing resiliency in consumption,” Kleinhenz said. “Nonetheless, the economy is cooling and interest-sensitive sectors, in particular, have seen a significant pullback. GDP is expected to grow very gradually in the closing months of 2022, at best about half of what was recorded in the third quarter. Consumers are stepping back to a degree and changing how they allocate their resources. Even though both may slow, employment will still be growing, and consumer spending should remain positive.”
Kleinhenz added. “There will be economic hardships, and some may feel like they’re in a recession. But for those who have jobs and feel secure about their employment, spending will continue.”
Retail sales for the first 10 months of the year advanced 7.5% year over year, on track to meet NRF’s forecasts that overall 2022 retail sales and November/December holiday sales would both grow between 6% and 8% versus 2021. Although the pace slowed to 6.5% in October, NRF maintained that was largely due to a comparison against strong early holiday shopping in 2021.