National Retail Federation Chief Economist Jack Kleinhenz | National Retail Federation
In the face of inflation and soaring interest rates, American consumers showed remarkable resilience in 2023, spending more than anticipated, as per a report by the National Retail Federation (NRF). However, the Washington D.C.-based industry association warned that this surge in expenditure is not sustainable.
The NRF revealed in a press release that consumer spending (unadjusted for inflation) rose by 5.2% year over year in October and November. This increase was attributed to a 7% annual rise in disposable personal income. Core retail sales, excluding auto dealers, gas stations and restaurants, saw a 3.7% increase year over year for the first 11 months of 2023.
The NRF press release further stated that spending in 2023 was supported by a tight labor market, increased equity and home prices, and savings accumulated since the onset of the COVID-19 pandemic. The report indicated that the inflation-adjusted gross domestic product grew by 2.3% over 2022. In December, unemployment fell to 3.7%, one of the lowest rates in decades, according to NRF. Additionally, wage growth outpaced inflation with a 4.5% annual increase compared to the 2.6% inflation rate measured by the Personal Consumption Expenditures Price Index in November 2023.
However, NRF's press release also cautioned about signs of concern from the job market. Employment openings dropped to 8.79 million in November—its lowest level in three years—as reported by NRF. Furthermore, an initial Labor Department-reported increase of 216,000 non-farm payrolls in December was revised downwards to a net increase of just 68,000.
Jack Kleinhenz, Chief Economist at NRF was quoted saying: "The labor market looks set to cool further this year, which will impact consumer expectations for employment and wage growth, and consequently affect spending decisions." He added, "Spending is elevated relative to current income, and maintaining the recent pace of growth will be increasingly difficult."
