Jack Kleinhenz, chief economist at the National Retail Federation (NRF), said that after a challenging year, the U.S. economy has proven healthy in 2023 even if it continues to slow. Adjusted for inflation, gross domestic product (GDP) growth in 2022 is expected to be 2.5 percent.
"The U.S. economy is on track for strong growth by the end of 2023. A strong labor market, rising wages, and the availability of excess savings have helped consumption continue to grow despite rising inflation and interest rates, "Kleinhenz said in the NRF's monthly Economic Review in December.
According to the Atlanta Fed's GDPNow model, gross domestic product grew at an annual rate of 3.2 percent in the first three quarters and surged 5.2 percent in the third quarter, but is expected to slow to 1.2 percent in the fourth quarter.
Gross domestic income (GDI), which exceeds the value of goods produced, including wages, rent, interest and company profits earned during production, rose just 1.5 percent in the third quarter, also after increasing 0.5 percent in the second quarter, adjusted for inflation. This is the fourth quarter in a row that the GDI growth rate has been below GDP, which Kleinhenz said "adds to the argument for a slowdown," though neither suggests growth has stopped.
The slower growth in gross domestic product (GDP) and direct domestic investment (GDI) is in line with a slowdown in consumer spending, which increased by just 0.2% month-on-month in October, down from 0.7% in September and the slowest pace of growth since May. Similarly, retail sales fell 0.1% on a seasonally adjusted month-on-month basis in October, compared with a 0.9% increase in September, and annual retail sales growth slowed to 2.5% from an unadjusted 4.1%, according to the Census Bureau report. Households spent less on cars, furniture and clothing, but more on travel, health care and housing.
"The resilience of the consumer is being tested" by a number of factors in addition to inflation and interest rates, Kleinz said. The excess liquidity that accumulated during the pandemic is shrinking, and access to credit has become more expensive as banks have become more cautious, both of which have curtailed the purchasing power generated by job and wage growth. Hiring held steady in October, but job openings hit their lowest level since March 2021 and the unemployment rate hit its highest level since March 2021.
On the positive side, the personal consumption expenditures index - a measure of inflation watched by the Federal Reserve - rose at a 3 percent annual rate in October, the lowest in two and a half years. Overall fiscal conditions were "sound," with personal spending up 5.3 percent year on year in October and disposable personal income up a "healthy" 7 percent.
As a result, consumers are expected to "continue to be resilient" during the holiday season, which begins Nov. 1 and runs through the end of December. The NRF expects spending to hit a new high and forecasts holiday retail sales to grow 3 to 4 percent over 2022, in line with pre-pandemic growth rates.
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