Washington – There are plenty of reasons to be anxious about where the economy might be headed – but there are also signs of resilience out there, according to National Retail Federation (NRF) chief economist Jack Kleinhenz.
“Though many people fear an extreme cooling off of the economy, there is not an overwhelming amount of evidence to support such predictions,” Kleinhenz said. “In general, the data suggests that we remain in an ongoing expansion.”
Acknowledging that the Federal Reserve faces “a tricky job” in addressing inflation, he pointed to continuing growth in employment, wages and consumer spending as a counterbalance. Taken together, they make it unlikely the Fed action will backfire into a major setback for the economy, he predicted.
Here are 5 indicators Kleinhenz is assessing as he games out the impact of inflation on consumer activity:
- April retail sales as calculated by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on key retail – were up 0.9% seasonally adjusted from March and 6.4% year over year. On a three-month moving average, sales were up 7.1% year over year.
- The labor market is a key driver of consumer spending, and 428,000 jobs were added in April, topping the 400,000 mark for the 12thmonth in a row. Unemployment was 3.6%, only slightly above the 50-year low of 3.5% in February 2020 just before the pandemic shut down much of the economy.
- The Employment Cost Index showed wages rising 5% compared with the first quarter of 2021, not high enough to keep up with inflation but the highest reading in nearly two decades.
- The latest Blue Chip Economic Indicators survey of economists projects that gross domestic product will climb 2.6% this year and another 2.1% in 2023.
- After jumping 5.7% in 2021, GDP contracted by 1.5% in the first quarter this year, the first quarterly decline since the pandemic-impacted second quarter of 2020. But Kleinhenz said “there is less reason for concern than the figure suggests.” Consumer spending was up a “solid” 3.1% year over year while business investment was up 9.2%, with the GDP drop tied to international trade balances, inventories and government spending.
“With changes underway that focus on taming inflation without splintering the economy, the nation’s economic system is in the process of being rebalanced in ways that are testing its resilience,” Kleinhenz said in the June issue of NRF’s Monthly Economic Review.
He also noted that while the rate of inflation expected by consumers in the near term has moved up, expectations for the long term are subdued.