NRF Says Recession in 2022 Unlikely; Touch and Go for 2023
The U.S. economy’s growth rate is slowing. Consumer confidence is the lowest it’s been since pre-pandemic. The stock market is tanking. And the war in Ukraine goes on.
Yet the nation is not likely to enter into recession this year, according to the National Retail Federation.
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“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,” NRF’s chief economist Jack Kleinhenz said Thursday. “In the meantime, a contracting economy short of a recession is not out of the question.”
Adding a ray of hope to the economic scenario, Kleinhenz said, “Regardless of a prospect of a downturn or whether it will meet the threshold of a recession, the consumer outlook over the next few months remains favorable.” Consumers, he added, remain financially healthy.
“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,” Kleinhenz said. “Policy issues will likely be the deciding factor shaping the economic outlook this year and next.”
The labor market remains tight, payroll growth remains sturdy despite May’s slowdown, and the unemployment rate is low, at 3.6 percent for the past three months, which is just above a 50-year low seen before the pandemic, according to the NRF.
Citing a report from the Institute of Supply Management indicating that suppliers’ deliveries had improved in May as demand, the NRF said orders and order backlogs grew at an improved pace.
Retail sales in May, according to the federation, were expected to drop but remained unchanged from April and grew 6.7 percent year-over-year.
For the first five months of 2022, retail sales rose 7.3 percent. Overall household spending — beyond just retail sales — is expected to rise 9 percent next year for a new high, the NRF said.
“As COVID-19 eases, consumers are rebalancing their spending and adjusting shopping habits,” the NRF indicated in its statement Thursday. “Restaurant sales, which serve as a proxy for other service sectors like recreation and transportation that are on the upswing, were up 0.7 percent monthly in May and 17.5 percent year-over-year. Airline traffic is up, with the number of passengers screened at airports in the first half of June only 12.5 percent below June 2019.”
The NRF noted that the Federal Reserve is moving aggressively to control inflation by raising interest rates in an attempt to cool demand without stalling the economy. According to Fed chairman Jerome Powell, “It is not going to be easy. We are not trying to induce a recession.”
The NRF also indicated that the Fed increased the benchmark federal funds rate by three-quarters of a percentage point in June, to between 1.5 percent and 1.75 percent. “That was the largest increase since 1994, and the Fed expects the rate to hit 3.4 percent by the end of the year and 3.8 percent by the end of 2023,” the NRF said.
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