NRF Bullish on Economy Despite Headwinds

Inflation reached 8.5% in the latest consumer price index from the Bureau of Labor Statistics (BLS)––the highest rate since the 1980s. The fast pace of rising prices has prompted the Federal Reserve to increase interest rates that could slow the economy in the coming months. Despite this, household finances look historically strong, according to NRF.

“The Fed’s tightening has kicked off a new cycle of adjustment and the outlook for interest rates has consequences for consumers and businesses alike,” NRF Chief Economist Jack Kleinhenz said in a statement. “There is a growing list of uncertainties, and the risks are mounting. But underlying strength and momentum from both the consumer and business sectors are likely to offset a modest slowdown and should leave the economy bustling forward this year.”

NRF also pointed to a 4% increase in retail sales in March on a year-over-year basis. The numbers reveal consumers are still willing to spend thanks to job growth, wage gains and wealth accumulated during the pandemic, in addition to low financial obligations relative to income, NRF said.

The Fed is expected to continue raising the federal funds rate to between 2.5% and 2.75% in 2023––the highest level since the middle of the Great Recession in 2008. The central bank is also expected to reduce its asset holdings, which reached $9 trillion during the pandemic. This sell-off will affect long-term interest rates and reduce the monetary stimulus the Fed has provided since the recession.

“The Fed is facing a tough problem,” Kleinhenz said. “Its playbook for tightening of monetary policy can exert pressure on demand. It doesn’t have a direct ability, however, to influence the supply side by producing more gas, planting fields of needed crops or manufacturing microchips.”

While consumers are still likely to spend, inflation is likely to slow, according to NRF, “partly because year-over-year comparisons will be against already-elevated levels of spending in 2021.”

The association reiterated its guidance for 2022, predicting retail sales will reach between $4.86 trillion and $4.95 trillion for the year––a  6%-8% increase over 2021.