Once again, the differing predictions about how retail consumers will act over the rest of the year depend on where you sit. Most industry leaders expect a healthy, if not spectacular spending trend, but other economic observers are not so sure.
On March 29 the National Retail Federation today issued its annual forecast, anticipating that retail sales will grow between 4% and 6% in 2023. In total, NRF projects that retail sales will reach between $5.13 trillion and $5.23 trillion this year.
“In just the last three years, the retail industry has experienced growth that would normally take almost a decade by pre-pandemic standards,” NRF President Matthew Shay observed.
“While we expect growth to moderate in the year ahead, it will remain positive as retail sales stabilize to more historical levels.”
On the plus side, employment numbers have been good during the first three months of this year. NRF also reported April 7 that imports, while down are at pre-pandemic levels.
The biggest concern right now are West Coast port negotiations with the longshoremen’s union, which have stalled resulting in business interests asking the Biden administration to step in.
In regard to NRF’s March 29 forecast, keep in mind that NRF’s numbers do not include restaurants, gas station or auto sales.
The 2023 figure compares with 7% annual growth to $4.9 trillion in 2022. The 2023 forecast is above the pre-pandemic, average annual retail sales growth rate of 3.6%.
Non-store and online sales, which are included in the total figure, are expected to grow between 10% and 12% year over year to a range of $1.41 trillion to $1.43 trillion.
While many consumers continue to use the conveniences offered by online shopping, much of that growth is driven by multichannel sales, where the physical store still plays an important component in the fulfillment process, NRF said.
As the role of brick-and-mortar stores has evolved in recent years, they remain the primary point of purchase for consumers, accounting for approximately 70% of total retail sales.
NRF projects full-year GDP growth of around 1%, reflecting a slower economic pace and half of the 2.1% increase from 2022. Inflation is on the way down but will remain between 3% and 3.5% for all goods and services for the year.
NRF projects the unemployment rate to exceed 4% before next year. NRF Chief Economist Jack Kleinhenz noted that aggregate economic activity is maintaining despite restrictive monetary policy.
He also acknowledged that recent developments in the financial markets and banking sector as well as some unresolved public policy issues will continue to complicate the outlook.
“It is still too early to know the full effects of the banking industry turmoil, consumer spending is looking quite good for the first quarter of 2023,” Kleinhenz added. “While we expect consumers to maintain spending, a softer and likely uneven pace is projected for the balance of the year.”
Others Are Less Optimistic
As we pointed out in the previous two issues, confusion reigns over what direction our “weird economy” will take, especially in the wake of threats to the banking system.
More than half of the economist members of the National Association for Business Economics who were recently surveyed believe that the U.S. will slip into a recession sometime this year.
More than two-thirds (69%) of respondents indicate they are “not very confident” or “not at all confident” that the Federal Reserve will be able to bring inflation down to its 2% goal within the next two years without inducing a recession.
Another 30% said they feel confident, somewhat confident, or very confident that the Fed will be able to achieve this outcome – popularly described as a “soft landing.”
Asked which factors they believe will be most instrumental in bringing down inflation. Tighter monetary policy is cited by 71% of respondents, lower commodity prices by 44%, supply-chain realignments by 42%, and weaker output growth by 40% of respondents.
Higher productivity growth (cited by 24% of respondents) and a stronger U.S. dollar (cited by 12% of respondents) are less widely seen as instrumental by the NABE members.
Exhibiting the wide spectrum of opinions is the fact that at the other end of the spectrum, 27% of the business economists surveyed suggest that CPI inflation is “unlikely” or “very unlikely” to stay above 4% through the end of 2023.
More than seven in 10 of the economists polled in February believe that growth in the CPI will remain above 4% through the end of 2023. Also, 26% of the respondents indicate CPI inflation is “very likely” to stay above 4% through 2023, while 45% suggest it is “likely” to do so.
Taking the Consumer Temperature
Recent research by WalletHub, the consumer credit services website, show those who are doing the retail spending are pumping the brakes following healthy rates of spending in January and February.
The WalletHub Economic Index decreased by more than 8% between March 2022 and March 2023. This means consumers are over 8% less confident about their financial outlook this month than they were at the same time last year.
The WalletHub Economic Index is a monthly survey that evaluates economic prospects based on 10 components of consumer sentiment. These components revolve around how people feel about their finances, purchasing plans and their perception of employment opportunities.
In March 2023, consumers’ optimism about their finances recorded a considerable decrease from the previous month, with their level of optimism having declined by nearly 11% over the past year.
In fact, consumers reported that their stress levels regarding money were considerably worse (up 8.9%) in March 2023 compared to the same period in the previous year.
The share of consumers who feel new employment opportunities are “abundant” is about 2% lower in March 2023 compared to last year. However, their confidence in having a job in the next six months is unchanged in March 2023 compared to last year.
Positive sentiment about finances in March dropped by 10.7% from the previous month. Consumers told WalletHub they were 11.3% less likely to make a big purchase in the next six months.
The likelihood of consumers choosing to buy a car in the next six months slid 9.5% and they reported that the likelihood of buying a home over the same period also was down 5.4%.
Although other reports show consumer debt piling up, the share of consumers who expect to have less debt after the next six months is only slightly lower (down 1.6%) in March 2023 compared to last year.