The economy is experiencing a slowdown in its momentum, although it is still expanding. National Retail Federation chief economist, Jack Kleinhenz, explains that progress has been made in combating inflation, but higher prices are still a concern. While consumers are still spending, there is a shift towards favoring services over retail goods. The forecast for 2023 retail sales is expected to fall in the lower range due to the slowing economy caused by the Fed’s interest rate increases.
The Bureau of Economic Analysis has revised their estimate of gross domestic product (GDP) growth for the second quarter to a 2.1% annual rate after adjusting for inflation. Gross domestic income also rose at a more modest rate of 0.5%. When averaged together, GDP and GDI were up 1.3%.
Job growth has been slower than average, with 187,000 jobs added in August compared to the monthly average of 271,000 over the past year. The unemployment rate rose to 3.8% in August, and wages and salaries grew at a slower rate of 0.4% month over month in July.
Despite these challenges, personal spending increased in July, with a growth rate of 0.8% compared to 0.6% in June. However, this has led to a decrease in the savings rate, suggesting that consumers are dipping into their finances to support their spending. Consumer confidence has taken a hit due to high prices and interest rates, as reflected in the decrease in the Consumer Confidence Index and the Consumer Sentiment Index.
The Personal Consumption Expenditures Price Index, which measures inflation, increased by 0.2% month over month in July. Year-over-year, it was up 3.3% compared to 3% in June. Sales received a boost during the summer months due to events like Amazon’s Prime Day and special deals offered by other retailers.
Spending on services, such as dining out, travel, and entertainment, has been growing since the lifting of pandemic restrictions. However, the growth rate in the second quarter was only 1.6%, down from 3% in the first quarter, according to the Census Bureau.