NRF’s Kleinhenz sees consumers still spending

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NEW YORK — National Retail Federation chief economist Jack Kleinhenz sees a challenging economy ahead in the coming year, but he’s not convinced it will qualify as a recession.

“I do expect a meaningful slowdown,” he said, but he added that he was still confident about consumer spending, which has mostly held up despite interest rate hikes and high inflation. “There still remains a significant amount of cash out there in checking accounts. I think the key with the consumer, and I’ll break it down very simply, is if you feel secure about your job, you probably have confidence about spending. And right now I don’t believe that that job security is a big issue for about 96% of people in the economy.”

Kleinhenz’s views came during a press-and-analyst-only session at NRF 2023: Retail’s Big Show. He was joined by Sarah Wolfe, an economist on Morgan Stanley’s U.S. Economics Research team and Kenneth Kim, senior economist at KPMG.

Wolfe mainly endorsed Klein-
henz’s view that the economy will dip, but likely avoid a true recession.

“We’re definitely in for a year of slower growth,” she said. “We do not forecast a recession in our outlook, but we do have growth slowing to about 0.3% in 2023. That’s a very painful year. That’s well below potential, which is about 1.7% growth, and it’s definitely slower than some of the very strong growth that we’ve seen over the last two years.”

Wolfe said that there will be pockets of the economy that feel recessionary.

“Housing activity is definitely one of them. We’re seeing layoffs within the tech sector, we’re seeing some pull-off in hiring for some of these financial services industries that are tied to housing mortgage originators. But really the silver lining for 2023 we also think is going to be the consumer. We have consumers’ spending slowing down to about a third of what we saw in 2022. But if you look under the hood, the consumer is still in pretty good shape. Household balance sheets are still very healthy. People have built up a tremendous amount of equity in their homes over the last couple of years. We have seen a sell-off in equities, and people lost a lot of stock market wealth, but that’s very concentrated amongst the wealthiest households. And we still, as you mentioned, have this tremendous amount of excess savings. And we know households have drawn down quite a lot of their excess savings in 2022. There’s a bit more to pull consumers through in 2023, but really what it comes down to is the labor market. And Jack said it well. If you think you’re going to have a job, you’re going to continue to spend.”

Kim was more bearish, noting that KPMG is forecasting that the U.S. economy will go into recession in the first half of the year.

“For Q1, we’re looking for a drop of 2% for GDP growth, and in Q2 it will be down 1.6%. So a 1.8% decline for the first half. But in the second half we do expect a recovery.”

Kim noted that progress is being made on inflation.

“The most recent CPI report for December showed a 6.5% annual rate, which is down from 7.1% in November, and the peak of 9.1% in June of last year. So we’ve made measurable progress. For the balance of this year, let’s say December of 2023, we’re probably looking for something like a 3%, 3.5% increase in the CPI. We’re not going to quite get to 2% that quickly. It’s always that last-mile problem retailers have. That’s usually the toughest part. So getting to that 2% target, I think will be a little bit longer beyond ’23. But we do expect continued progress on inflation. But the Fed is not done yet. They’re still going to keep raising rates.”


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