Recent Retail Surge Not 'Sustainable,' Says NRF CEO, Eyeing 6%-8% Growth

Marking the “grim” two-year anniversary of the onset of the COVID-19 pandemic, National Retail Federation CEO Matthew Shay extolled the role retailers played for consumers during the “massive disruption,” while he reined in expectations for 2022. Inflation is expected to “remain higher than previously expected and not to cool down” until the Federal Reserve’s target of 2% is reached “sometime in 2023,” he said on a Tuesday webcast.

After soaring year-on-year growth of 14% in 2021, NRF predicted “durable and enduring” economic growth of 6%-8% in 2022 to $4.86 trillion, above the 10-year, pre-pandemic growth rate of 3.7%, Shay said. He referenced a “new normal,” that will look “very different” from the world of two years ago, while acknowledging new and lingering headwinds that “won’t go away overnight.” Despite very positive trends since the start of the pandemic, Shay said, “I think we also recognize that this pace of growth and expansion isn’t sustainable, and it may not even be healthy.”

The spring holidays will likely mask consumers' underlying concerns through much of April, emailed Aptos Director-Retail Market Insights Dave Bruno, commenting on the NRF forecast. Retailers should "prepare for the uncertain months ahead by focusing on the one thing they can control: the customer experience," said Bruno. Retailers should offer shoppers convenience, flexibility, transparency and "timely communications" to encourage frequent purchases, he said.

nline sales, included in total sales, are expected to grow 11%-13%, said NRF Chief Economist Jack Kleinhenz, noting projections don’t include spending on cars, gasoline or restaurants. Surging gas prices are expected to have an impact on economic growth. NRF predicts slowing GDP growth of about 3.5%, due to inflation, rising interest rates and less government stimulus.

Kleinhenz noted “considerable uncertainty,” saying the economy is “balancing growth, inflation, geopolitical uncertainty and policy variability.” NRF expects “solid economic growth to continue” at about 3.5%, adjusted for inflation. GDP growth will likely slow this year, matched by consumer spending patterns for goods and services in the 3% range, with a “shift back to services from goods,” Kleinhenz said.

NRF expects “good jobs and wage growth" and declining unemployment, but if inflation expectations “become entrenched, there’s a risk for a wage-price spiral,” Kleinhenz said. Russia’s invasion of Ukraine and its geopolitical repercussions will likely result in “some resetting of the world economy, and these ripples will make their way to the United States,” he said. COVID-19 could also still complicate the economic picture, Kleinhenz said.

Morgan Stanley Chief U.S. Economist Ellen Zentner said Q1 was stronger than the investment firm expected, but it scaled back the full-year forecast for GDP by 0.3 of a point to 4.3% on a Q4-over-Q4 basis, and another tenth of a point for 2023. It expects 2.8% growth in consumer spending, she said.

Joel Prakken, IHS Markit chief U.S. economist, called his forecast more “pessimistic” than NRF’s or Morgan Stanley’s on “much higher” gasoline and food prices, slower economic growth and financial uncertainties resulting from Russia’s invasion of Ukraine. It trimmed a percentage point from its baseline forecast for U.S. growth Q4-Q4, bringing it to 2.4%.

Prakken said pre-invasion, strong employment and wage growth, accumulated savings, significant increases in household net worth and the transition of COVID-19 from pandemic to endemic pointed to “continued revival of service spending and a gradual transition away from goods spending.” Now, he said, “a lot of that has to be thrown aside” due to events in Eastern Europe.

IHS believes the price of crude oil will hover around $150 a barrel through spring before declining gradually, meaning record-high gas prices will persist. Food prices could remain elevated through the “next planting cycle,” he said. Year-on-year consumer price inflation could reach 6%-7%, which will “erode disposable incomes” and put a damper on positive fundamentals for consumers, Prakken said.