Climbing interest rates intended to bring down high inflation has consumers still feeling worried – but it hasn’t completely stopped their spending.
“Consumers have become cautious – but they have not stopped spending,” said Jack Kleinhenz, National Retail Federation’s chief economist.
According to the most recent issue of NRF’s Monthly Economic Review, consumer spending held up better than expected in August when retail sales reported by the Census Bureau grew 0.3 percent from July and 9.1 percent year over year.
“Growth is not as high as last year, but households continue to spend each month as more jobs, wage growth and savings backstop their finances and help them confront higher prices,” Kleinhenz added.
The Fed increased interest rates again, this time three-quarters of a percentage point, bringing its current rate to between 3 percent and 3.25 percent. Those higher interest rates are having an impact on consumers at a time when consumer confidence is at its lowest level in years.
“The economic situation in the United States is unsettling,” Kleinhenz said. “Consumer confidence is down, consumer spending’s rate of growth has slowed, and economists and consumers alike are worried about the possibility of a recession, all reflecting persistently high inflation and rising interest rates. Nonetheless, spending continues to grow, and many economists say a recession – if there is one – will likely be mild.”
Consumers are staying optimistic, though, expecting inflation to be at only 5.7 percent in a year’s time, according to an August survey by the Federal Reserve Bank of New York. That’s down from the 6.2 percent expected just a month prior.
Meanwhile, gross domestic product declined 1.6 percent year over year in the first quarter and 0.6 percent in the second quarter, a mark that typically indicates a recession. But the Blue Chip Economic Indicators panel of business economists, which includes Kleinhenz, is predicting a small growth in the just-ended third and coming fourth quarter, at 1.2 percent and 0.6 percent respectively.
Of the Blue Chip economists, only 38 percent believe the Fed will be able to get inflation under control without triggering a recession. But 95 percent say a recession would likely be mild if it occurs.