The U.S. economy did better in the first half of 2023 than early indicators suggested and appears to be “rolling forward” even as the rate of growth slows for the remainder of the year, National Retail Federation Chief Economist Jack Kleinhenz reports.
“The first half of the year is over and the economy is still moving in the right direction,” Kleinhenz said. “While its rhythm, tone and pattern have slowed, it has not stalled and recently revised data shows underlying strength that seems to be rolling forward.
“The resiliency of the U.S. consumer will be tested in the coming months as economic headwinds are likely to impair spending,” Kleinhenz continued.
Nonetheless, $500 billion in excess savings built up during the pandemic and continued employment growth mean consumers are “the path of least resistance to economic growth and are doing their part to keep the economy moving ahead,” he explained.
Kleinhenz’s remarks came in the July issue of NRF’s Monthly Economic Review, which reports revised data from the federal Bureau of Economic Analysis shows that first-quarter gross domestic product adjusted for inflation grew two percent year over year rather than the 1.1 percent first reported.
The personal savings rate has been revised upward to 4.3 percent from 3.4 percent and private final sales to domestic purchasers – which exclude inventories and imports to provide a good indicator of underlying growth – were revised to 3.2 percent growth from 2.9 percent.
Consumer spending – which makes up 70 percent of GDP – increased at an annual rate of 4.2 percent in the first quarter, which was four times the one percent growth in the fourth quarter of 2022 and the fastest growth since mid-2021 despite strong headwinds from interest rates and inflation.
Unadjusted household spending was up only 0.1 percent month over month in May, compared with 0.6 percent in April, indicating a slowdown can be expected when second-quarter results are released.
Spending is slowly shifting from goods, which declined 0.5 percent in May, to services, which grew 0.4 percent.
Retail salesas defined by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – were up 0.4 percent month over month in May but less than the 0.6 percent growth in April.
The Federal Reserve’s Open Market Committee left interest rates unchanged last month for the first time in 10 months, saying the pause would give time to assess the effect of the increases already adopted.
But most members of the committee said they expected two more rate increases in the coming months, with others predicting anywhere from one to four hikes. Only two of the 11 members expect rates to stay the same.
Meanwhile, inflation remains elevated but is easing and taking pressure off households. The Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – showed prices were up 3.8 percent year over year in May. That was down from 4.3
