NRF highlights an ongoing decrease in consumer spending

At a time when how people perceive current economic conditions is mixed, to be fair, it is clear that the economy has a lot going well for it, too, in the form of a 70-year low for unemployment, mostly steady GDP readings, and an overall trending down in inflation. But there are also concerns, too, like increasing gas prices, the Federal Reserve’s next moves in interest rates, and, of course, the interconnected trio of lower imports, still somewhat high inventory levels, and a reduction in consumer spending, three things which are very pronounced in looking at freight market activity.

The decrease in consumer spending, which, as we all know, drives roughly 70% (give or take) of all economic activity, was a key theme in a blog posting recently issued by National Retail Federation (NRF) Chief Economist Jack Kleinhenz, in the NRF’s Monthly Economic Review.

The key thesis made by Kleinhenz was that even though U.S. consumers are buying more than they were a year ago at this time, growth in spending is slowing down, as does the economy amid the aforementioned higher interest rates focused on lowering inflation.

“The economy was clearly more resilient in the first half of this year than many expected, and the consumer environment has been positive as inflation has slowed,” Kleinhenz observed. “Nonetheless, there are ongoing economic challenges and questions, and the pace of consumer spending growth is becoming incrementally slower. Consumers are still spending but are under financial pressure and have been adjusting how much they buy while also shifting from goods to services. 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.”

NRF offered up various data points, highlighting the current economic outlook, including:

• second quarter GDP coming in at 2.4% (adjusted for inflation), topping the first quarter’s 2% reading and on par with calendar year 2022’s 2.1%, and trailing 2021’s 6%;
• annual spending growth fell from 4.2% in the first quarter to 1.6% in the second quarter;
• second quarter retail sales (excluding automobile dealers, gas stations, and restaurants) increased 3.1% on an unadjusted basis annually in the second quarter, which NRF said “kept up with inflation,” while trailing the first half of the year, which was up 4%; and
• the Personal Consumption Index was up 3.7% annually in the second quarter, down from the first quarter’s 4.9% reading and above the Federal Reserve’s 2% target, which was followed by the Federal Reserve raising rates another 0.25% in July, to between 5.25% and 5.5%, the highest level since January 2021

These factors, and others, speak to the ongoing narrative of mixed economic signals and themes, which have been intact for more than a while, to be sure.

And when looking at freight tonnage and volume readings issued by industry associations and organizations, as well as in earnings commentary by publicly-traded freight transportation carriers and logistics services providers, it is very clear that we are, have been, and are likely to remain in this period of reduced consumer demand and subsequently lower freight volumes, with a key question being, or remaining, for how long will this be the case?

In short, I don’t know the answer to that question, that is for sure. But there is some sentiment that as we close out 2023 and 2024, there could be a return to something more normal perhaps i.e. pre-pandemic.

There will be eventually be a shift to a more typical cadence of steady consumer activity, which will be in tandem with people buying more goods moving on the water, rails, and highways, no question about that. It really just remains a matter of time.