Economic indicators are giving conflicting signs, but the nation does not appear to be in a recession and should be headed toward a soft landing from the rampant inflation and high interest rates of the past two years, National Retail Federation (NRF) chief economist Jack Kleinhenz said in the June edition of NRF’s Monthly Economic Review.

The Federal Reserve’s increases in interest rates in an effort to control inflation have been slowing the economy but not so much as to tip it into recession, Kleinhenz said.

“Today’s economy is a lot like looking into a kaleidoscope, with the view changing and the data providing a different reflection of what’s happening every time you look,” Kleinhenz added. “Depending on which data you view in the economic kaleidoscope, you get two different angles on the state of the consumer. While survey data shows consumers do not have much confidence in the economy, actual spending data shows they were upbeat as the second quarter kicked off.”

“Consumer spending has been bolstered by a strong job market and rising wages, which have helped counter rising prices and higher borrowing costs,” Kleinhenz said. “While it’s difficult to reconcile these views, what we’ve learned over the last several years is don't count the American consumer out, at least not yet.”

Revised data shows that gross domestic product grew at an annualised rate of 1.1 per cent in the first quarter rather than the original estimate of 1.3 per cent. Furthermore, the average of GDP and gross domestic income – a measure of everything earned during production and often a bellwether of revisions to GDP – decreased 0.5 per cent in the first quarter following a decrease of 0.4 per cent in the fourth quarter. Kleinhenz expects GDP to grow about 1 per cent for the year.

“This suggests that GDP likely overstates US economic growth and that higher interest rates, tighter credit and persistent inflation are having more of a concerted effect on the direction of the economy than suggested by GDP alone,” Kleinhenz said, referring to the GDP-GDI average. “Given that, we continue to look for a soft landing this year.”

While aggressive Fed tightening of credit has resulted in a recession every time it has been tried since 1970, there have been other times that the Fed has tightened interest rates and been able to slow the economy and inflation without a recession, Kleinhenz said, including 1994-1995 and 2015-2018.

Kleinhenz said the latest ‘state coincident indexes’ of state-level economic data produced by the Federal Reserve Bank of Philadelphia have increased in every state except Alaska in the past three months, “suggesting that we are not in a recession.” A study by the Federal Reserve Bank of St. Louis said at least half of the indexes need to show negative growth to provide reasonable confidence that the nation’s economy is in recession.

The University of Michigan Consumer Confidence Index, which had risen to 64.9 in January after a record low of 50 last June, was at 59.2 in May, a 4.3-point drop from April. Nonetheless, personal consumption was up 6.7 per cent year over year in April while personal disposable income was up 4.7 per cent, indicating that “the economy is holding up better than many have argued,” Kleinhenz said.

Year-over-year inflation as measured by the Personal Consumption Expenditures Price Index was at 4.4 per cent in April. That compared with 4.9 per cent in the first quarter and 5.7 per cent in the fourth quarter.