NRF Says Economy is Expanding but Momentum is Slowing

The economy is still growing, but not as fast as it was earlier this year, National Retail Federation Chief Economist Jack Kleinhenz reported.

“The U.S. economy continues to expand but recent data is signaling a slowdown in its momentum,” Kleinhenz said. “The economy is slowing but not halting.”

Kleinhenz continued, “Progress has been made on combating inflation, but higher prices remain. While consumer are still spending, the composition of their spending continues to favor services over retail goods and even then, there was less momentum going into the third quarter.”

The NRF economist comments came in the September issue of NRF’s Monthly Economic Review, which said the Bureau of Economic Analysis now estimates that gross domestic product grew at a 2.1 percent annual rate adjusted for inflation in the second quarter rather than the 2.4 percent reported earlier.

Gross domestic income, which measures the value of wages, rent, interest and corporate profits earned during production, rose by a more modest 0.5 percent annual rate. Averaged together, GDP and GDI were up 1.3 percent.

The economy added 187,000 jobs in August, up from 157,000 in July but well below the average monthly gain of 271,000 over the past year. The unemployment rate jumped 0.3 points to 3.8 percent in August as more people entered the labor market looking for jobs. Wages and salaries grew only 0.4 percent month over month in July, down from 0.6 percent in June.

Despite the weaker-than-average job gains, slower wage growth and higher unemployment, personal spending increased 0.8 percent month over month in July, up from 0.6 percent growth in June. With spending growth outpacing income growth, the savings rate dipped to 3.5 percent in July from 4.3 percent in June, “suggesting that consumers are digging into their finances to support household spending.”

Consumer confidence took a bit of a hit in August as high prices and interest rates weighed on shoppers’ decisions,” Kleinhenz said. The Conference Board’s Consumer Confidence Index fell to 106.1 from July’s 114 while the University of Michigan Consumer Sentiment Index dropped from 71.6 in July – the best reading since October 2021 – to 69.5 in August.”

Despite continuing inflation and reduced consumer confidence, retail sales as measured by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – “surprised to the upside” and rose 3.8 percent year over year in July.

Sales got “a midsummer boost” from Amazon’s Prime Day, special deal days offered by other retailers and entertainment-related events. But Kleinhenz said the number was partially lifted because of comparison against low sales at the same time last year.

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