NRF Chief Economist Says Consumer Spending Is Delaying a Recession, But Some Analysts Are Less Optimistic

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Since early 2023, economists have been warning about a potential recession in the United States. Now, at least one economic adviser predicts that we’re safe from recession for the rest of the year because consumers are still spending. But how long will that last?

“As long as people feel their jobs are secure and we’re seeing a level of job increases, people will continue to spend,” National Retail Federation chief economist Jack Kleinhenz told The Epoch Times. “I don’t believe a recession is in the cards for the remainder of the year. We had reasonably good labor numbers and there’s some softening, but consumer spending hasn’t cut back.”

Kleinhenz did not have a prediction for 2025; however, he is bullish about consumer confidence and hopeful that the Federal Reserve will cut interest rates this year.

“My expectation is that there will be a reduction in interest rates and that will help considerably, especially when it comes to consumer affordability and debt incurred. Especially low-income and young people who have added to their monthly burden of credit cards. That’s part of the puzzle when we look at six months through the rest of the year, that the economy will stay in expansion mode,” he said.

What Kleinhenz alluded to was rising consumer debt. According to the Federal Reserve Bank of New York’s latest Household Debt and Credit Report, total household debt rose by $109 billion to $17.8 trillion in the second quarter of 2024, and credit card balances increased by $27 billion to $1.14 trillion.

“We know that credit is the flywheel for the economy and we can’t operate on pure cash and income. If that were the case, it would be a lot smaller economy. Hopefully, some of this will be self-corrected,” he said. “We’re not in a credit crisis like we were going into 2008 and 2009. That was significant.”

Not all share the optimism of Kleinhenz and the NRF.

Mark Hamrick, senior economic analyst and Washington bureau chief for Bankrate, told The Epoch Times he sees no clear path to understanding consumer sentiment for the remainder of 2024.

“I understand where the NRF is coming from because they represent their retailers. But, consumer confidence is not particularly high and is being undermined by high prices,” he said. “Slowing auto sales are a factor, not just because of a lack of affordability but also because of high interest rates. This is not a time where the consumer is flexing its muscle, but is just hanging on.”

In its latest report on the state of U.S. consumer spending in 2024, management consulting firm McKinsey & Company says that the consistency of consumer spending may be the direct result of a positive outlook on the economy ahead, with optimism in the U.S. economy growing to its highest level in a year. Still, it said, “many of the same dynamics that have characterized consumers’ feelings in the past year—including a cautiousness toward spending and a simultaneous willingness to splurge—remain evident.”

However, McKinsey & Company also stated that the level of consumer optimism varies depending on age. The report noted that younger consumers have higher optimism rates than Gen Xers and baby boomers and said that the long-term unemployment rate could be the catalyst: A higher percentage of Gen Xers have been unemployed or jobless for more than 27 weeks than the younger generations.

According to a July report from the Bureau of Economic Analysis (BEA), consumers are paying little attention to inflation and the increase in credit card interest rates. The BEA reported a $103.8 billion increase in current-dollar personal consumption expenditures, which measures consumer spending, including a jump of $59.3 billion in spending for services and $44.5 billion in spending for goods. In turn, personal interest payments and current transfer payments also increased by $103.3 billion.

Despite the continued spending, a number of retailers and restaurants have filed for Chapter 11 bankruptcy protection, including Bed Bath & Beyond, Metro Mattress, Blink Fitness (a subsidiary of Equinox), Buca di Beppo, Delta Apparel (parent company of Perry Ellis), Rue 21, and Rite Aid.

Kleinhenz says that some struggling retail locations have been victimized by fickle and evolving consumer tastes.

“The retail stores going under are a case of matching consumers with the products you have to offer,” he said. “There are definitely changes going on in customer preferences. Since the pandemic, people have not been shopping the same way, and they’re not purchasing the same things as in the past.”