Kleinhenz explains the US economy was more resilient in the first half of the year than many expected, however he adds that consumers are still spending but are under financial pressure and have been adjusting how much they buy while also shifting from goods such as apparel to services.

He points out the consumer environment has been positive as inflation has slowed, but “there are ongoing economic challenges and questions, and the pace of consumer spending growth is becoming incrementally slower”.

In fact, Kleinhenz remarks 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.

Data shared by NRF reveals gross domestic product grew at a 2.4% annual rate adjusted for inflation in the second quarter. That was up from 2% in the first quarter but in line with 2.1% for all of 2022 and far below the 6% seen in 2021.

Consumer spending, which makes up about 70% of GDP, played a major role in the continued expansion. But year-over-year spending growth slipped from 4.2% in the first quarter to 1.6% in the second.

The Personal Consumption Expenditures Price Index – the Federal Reserve’s preferred measure of inflation – was at 3.7% year over year in the second quarter. That was down from 4.9% in the first quarter but still far above the Federal Reserve’s target of 2%. The Federal Reserve responded by raising rates another quarter-point last month to a range between 5.25% and 5.5%, the highest level since January 2021.

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“While the Federal Reserve still faces a tricky job in trying to control inflation without triggering a recession, the current framework clearly increases the chance of a slower economy,” he says.

Kleinhenz believes the full impact of rising interest on the economy is difficult to predict but he highlights revolving credit (mostly credit cards) contracted by nearly $1bn in June and consumers are less likely to use credit cards to fund purchases as rates rise.

In addition to this, Kleinhenz highlights the labour market is also in “lower gear.”

The NRF’s data also shows the 185,000 jobs added in June was the lowest number since mid-pandemic in December 2020 and the 187,000 jobs added in July was only slightly better. In fact, its data suggests there were 9.58 million job openings in June, down slightly from 9.62 million in May.

Two months ago Kleinhenz believed that although the economic indicators were giving conflicting signs, the US should be headed toward a soft landing from the high inflation and high-interest rates of the past two years.