NRF: Despite Headwinds, U.S. Economy Moving in Right Direction

WASHINGTON, D.C. — The U.S. economy performed better during the first six months of 2023 than early indicators suggested and appears to have positive momentum even as the rate of growth slows for the remainder of the year, according to the National retail Federation's (NRF) Monthly Economic Review for July.

"The first half of the year is over and the economy is still moving in the right direction," said NRF Chief Economist Jack Kleinhenz. "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."

He noted that U.S. consumers' resiliency will be tested in the coming months, with economic headwinds likely to impair spending. However, the combination of $500 billion in excess savings built up during the pandemic and continued employment growth means that consumers are "the path of least resistance to economic growth and are doing their part to keep the economy moving ahead."

[Read more: Convenience & Gas Retailers Land Spots on NRF's Top 100 List]

Revised data from the U.S. Bureau of Economic Analysis shows that first-quarter gross domestic product adjusted for inflation grew 2 percent year over year rather than the 1.1 percent that was previously reported. The personal savings rate has been revised to 4.3 percent, up from 3.4 percent. Private final sales to domestic purchasers were revised to 3.2 percent growth, up from 2.9 percent.

Consumer spending, which makes up 70 percent of GSP, increased at an annual rate of 4.2 percent during the first quarter of 2023, four times the growth that occurred during the fourth quarter of 2022 and the fastest growth since mid-2021 despite strong headwinds from interest rates and inflation, NRF reported.

Unadjusted household spending was up just 0.1 percent month of month in May vs. 0.6 percent in April, indicating a slowdown when Q2 2023 results are released. Spending is slowly shifting from goods to services.

Last month, the Federal Reserve's Open Market Committee opted to leave interest rates unchanged for the first time in 10 months, noting that the pause would allow time to assess the effect of the previous increases. However, the majority of committee members said they expected two more rate increases in the coming months.

Inflation remains elevated but is easing and taking pressure off of households, according to NRF. The Personal Consumption Expenditures Price Index showed that prices were up 3.8 percent year over year in May, down from 4.3 percent in April and the first time inflation was under 4 percent since early 2021. Despite this reduction, the Federal Reserve could further boost interest rates in response to increases in consumer spending as it tries to slow inflation to its 2 percent target, NRF reported.

Washington, D.C.-based NRF is the world's largest retail trade association.