NRF chief economist: Consumer spending growth slows

National Retail Federation (NRF) chief economist Jack Kleinhenz has reported that the growth in US consumer spending is decelerating due to stabilizing economic conditions amidst heightened interest rates aimed at curbing inflation.

In NRF's Monthly Economic Review for August, Kleinhenz noted that the adjusted gross domestic product increased at a 2.4% annual rate during the second quarter, up from 2% in Q1. However, this growth aligns with the 2.1% rate observed throughout 2022 and is lower than the robust 6% experienced in 2021.

Consumer spending, constituting approximately 70% of GDP, played a pivotal role in sustaining the economic expansion. Yet, year-over-year spending growth declined from 4.2% in Q1 to 1.6% in Q2. Retail sales, excluding select sectors, rose 3.1% year over year in Q2, matching inflation rates but falling below the 4% growth registered in the first half of the year.

As rates rise, consumers are less inclined to utilize credit cards for purchases, evident from the nearly $1 billion contraction in revolving credit in June. 

“The economy was clearly more resilient in the first half of this year than many expected, and the consumer environment has been positive as inflation has slowed,” Kleinhenz said. “Nonetheless, there are ongoing economic challenges and questions, and the pace of consumer spending growth is becoming incrementally slower.”

“Consumers are still spending but are under financial pressure and have been adjusting how much they buy while also shifting from goods to services. While job and wage gains have counterbalanced inflation, the stockpile of savings accumulated during the pandemic is dwindling and is no longer providing as much spending power as previously available,” he said.