NEW YORK — The economy is showing unexpected signs of strength as consumers continue spending despite concerns about inflation, while the Department of Labor jobs report for July shows the economy added half a million jobs last month. Despite those trends, consumers continue to express pessimism.
Employment growth far exceeded expectations and effectively recouped the losses sustained in the wake of the COVID-19 pandemic. At the same time, the unemployment rate fell to 3.5%, the half-century low recorded just before the pandemic struck.
The burst of job growth followed a first half of the year, during which payrolls grew faster than during any other post-World War II period when the economy began to contract, according to The Wall Street Journal. The employment picture suggests that the economy is not entering recession, despite recording two consecutive months of contraction.
Even before the job numbers were released, the chief economist of the National Retail Federation, Jack Kleinhenz, commented in the August issue of the NRF’s Monthly Economic Review that the economy remains unlikely to enter a recession this year.
“While the economy has lost momentum heading into the second half of the year, economic data is not yet consistent with a typical recession,” he wrote. “Our view is that while the economy is functioning at a slower pace it is likely to avoid a recession this year. Despite ongoing uncertainties, we believe the underlying strength of the economy is strong enough to deal with inflation and keep a recession at bay — or short-lived even if we are wrong.”
Meanwhile, the Mastercard Spending Pulse report for July shows that consumers are continuing to spend both on things and experiences despite their anxieties over inflation and the general state of the economy. U.S. retail spending, excluding automotive expenditures, rose 11.2% year over year, driven in part by inflation as well as surging e-commerce sales that were propelled by major promotional events, including Amazon’s Prime Day. E-commerce sales climbed 11.7% in July, a sharp increase after months of slower growth.
Kroger Co. chairman and chief executive officer Rodney McMullen noted during the company’s first quarter conference call in June that shopping behaviors vary considerably. “We are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment,” he said.
Consumers demonstrated an eagerness to travel again, as lodging purchases soared 29.6% and airline sales leapt 13.3%. Restaurants saw business rise 9.5%.
“The latest retail trends place an emphasis on consumer choice and passion-driven spending — they’re hunting for deals, shopping across channels and ultimately still spending on experiences and goods that make them feel good,” said Steve Sadove, senior advisor to Mastercard and former chairman and CEO of Saks Inc. “As retailers grapple with excess inventory and supply chain constraints, it’s likely that the promotional activity seen in July will continue to be an important strategy for retailers.”
Nonetheless, consumers participating in polls remain gloomy. The University of Michigan Surveys of Consumers showed little uptick in sentiment from its historic lows recorded in June. Similarly, the Conference Board’s Consumer Confidence Index fell for the third month in a row.
“The decrease was driven primarily by a decline in the Present Situation Index — a sign growth has slowed at the start of quarter three,” said Lynn Franco, senior director of economic indicators at the Conference Board. “The Expectations Index held relatively steady but remained well below a reading of 80, suggesting recession risks persist.”