NRF’s 2023 retail sales forecast calls for growth mixed with challenges

At a time when economic uncertainty and fluctuating logistics and supply chain conditions remain fully intact, there was some optimistic news issued this week, focusing on the ongoing strength and resilience of United States-based consumer.

That was highlighted in the Washington, D.C.-based National Retail Federation’s (NRF) 2023 retail sales forecast, which was issued earlier this week.

In its forecast, NRF is calling for 2023 retail sales to see an annual increase between 4%-to-6%, coming in between $5.13 trillion-to-$5.23 trillion. NRF’s numbers come with the caveat that they do not include sales data from automobile dealers, gasoline stations and restaurants. This annual forecast, trails the 7% rate of annual retail sales growth seen in 2022, for a total of $4.9 trillion. And NRF said that the 2023 forecast tops the pre-pandemic, average annual retail sales growth rate of 3.6%.

What’s more, non-store and online sales, which are included in the total retail sales figure, are pegged to rise 10%-to-12% annually, coming in between $1.41 trillion-to-$1.43 trillion. This is in line with the 2022 forecast made by NRF a year ago, which called for a growth rate of 11%-to-13%, to between $1.17 trillion-to-$1.19 trillion. As previously noted, these figures continue to see major traction, which had been occurring well before the onset of the pandemic a little more than three years ago. But even with online and non-store sales growth continuing to see strong upside, NRF acknowledged that brick and mortar stores “remain the primary purchase point for consumers, accounting for approximately 70% of retail sales.”

The pace of economic momentum in 2023 figures to loom large, in how retail sales numbers end up, with NRF putting full-year GDP growth at around 1%, which it said reflects a slower economic pace, representing half of 2022’s 2.1% reading. Addressing inflation, it observed that while it is decreasing, it is expected to come in between 3%-to-3.5% in 2023, for goods and services.

Employment remains another obstacle, too, with NRF expecting job growth to decline in the coming months, with the unemployment rate expected to top 4% before the end of 2023, coupled with a decrease in economic activity, as well as the potential for restrictive credit conditions.  

In a virtual briefing, NRF Chief Economist Jack Kleinhenz said that aggregate economic activity has held up well, despite restrictive monetary policy that has worked purposely to curb inflation. And he added that some recent developments in the financial markets and banking sector, in addition to some unresolved public policy issues, have made the outlook less certain.

“Consumer spending is looking quite good, however, for the first quarter of 2023, it has been supported by a strong labor market, wage growth, excess savings built up during the pandemic, access to credit and lower energy costs,” he said. “These factors should support households, as we move forward into 2023, but spending will likely be tempered, as access to credit becomes more expensive and job growth slows. Clearly, it is too early to know how the banking industry’s turmoil will have a ripple effect on consumption. Even if the current crisis subsides, there will be real effects on the economy, affecting business and consumer attitudes and their behavior vis-à-vis…financial conditions.”  

Higher interest rates, said Kleinhenz, are clearly having an impact and working their way through and are working their way to dampen inflation and economic activity, something which is evident in the housing sector. And higher interest rates and inflationary pressures are likely to further affect consumer spending in 2023, he added, while also noting the job market remains resilient but the expected slower pace of the economy points to a weaker and bumpy—but still positive—job growth this year.

Needless to say, this forecast, while, somewhat positive, pulls no punches, in explaining that, yes, growth is in the cards, but the overall strength of the economic hand remains mixed. How things shake out will have to be seen, at this point, but the overall economy and a strong logistics and supply chain backbone have proven to be up to the many challenges. Let’s hope that continues to be the case in 2023.