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NRF: Recession unlikely, growth ahead

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February 7, 2023

A U.S. recession is unlikely and there will be slight growth this year, according to National Retail Federation Chief Economist Jack Kleinhenz.

"A month into 2023, the economy is facing stiff headwinds and — with the exception of easing inflation — will likely face more challenges before it gets better," Kleinhenz said in a press release from the retail industry organization. "The debate on whether we are in a recession will heighten over the next few months, just like last year. But while households will probably feel recession-like conditions this year, I do not expect that the downturn will be severe enough to become an official recession."

Kleinhenz's remarks were published in the February issue of NRF's Monthly Economic Review, which said the economy is "more resilient than expected" but nonetheless showing a mild slowdown as Federal Reserve interest rate hikes adopted to bring inflation under control "are having their desired effect."

"The good news is that corporate and household balance sheets are in the best shape we've seen going into a downturn," Kleinhenz said in the release. "This should make any economic slowdown mild and limit the downside risks despite my outlook for the economy to straddle a zero-growth path during 2023."

While consumer spending grew 2.8% for the year, it was slowing in late 2022, dropping 0.2% month over month in November and another 0.3% in December. Overall retail sales dropped 1.1% monthly in December as gasoline prices and automobile sales fell sharply and holiday sales turned out to be choppy. Retail sales as defined by NRF — excluding auto dealers, gas stations and restaurants to focus on core retail — were down 0.5% month over month in December. Combined November-December holiday sales were up 5.3% over 2021 but were slower than expected.

Whether the economy will see a "sluggish pace of growth" or slips into a "considerable falloff" depends largely on whether the Fed can strike the right balance between interest rates and inflation, Kleinhenz said in the release.