Economists spent much of 2023 warning that a recession could be imminent as the Federal Reserve raised interest rates to the highest level in more than two decades. But for companies like Sorgel Orchards in western Pennsylvania, a recession appears nowhere in sight.
“People are buying decorative items,” said company manager Amy Sorgel. He said demand for gourds and cornstalks is high and customers are coming to pick pumpkins and apples. “People like to choose – people will choose anything.”
Sales are up, although attendance at the farm’s annual fall festival is down due to rainy weekends. Demand at the hard cider store has been solid. And owners are preparing for a strong season at their stores selling Christmas decorations.
Sorgel’s bustling business is a microcosm of a trend going on across the country. Consumer demand unexpectedly rebounded in 2023, defying widespread expectations of a recession and helping to fuel strong overall growth. The economy expanded at an annual rate of 4.9 percent in the third quarter, faster than roughly 2 percent The Fed’s pace officials think of as its standard growth pace.
This is very good news for American companies. But it is also a source of confusion. Why is the economy still growing so rapidly despite more than a year and a half of the Fed’s campaign to slow it down, and how long will this boom last?
Fed officials have lifted interest rates above 5.25 percent, making it more expensive to get a mortgage, borrow to expand a business or carry a credit card balance. Those measures were intended to infiltrate the markets in order to cool the real economy. Parts of the economy have felt pressure on existing home sales has slowed down, For example. Yet employers continue to provide jobs and families continue to spend.
It’s hard to predict what will happen next as the all-important holiday shopping season approaches. A solid job market and cool inflation could together give consumers the wherewithal to prop up the economy. But many companies are being careful not to build up too much inventory or predict too strong a sales outlook, worried that higher borrowing costs could collide with smaller savings and push Americans to be frugal in the two years ahead. More rapid inflation can have cumulative effects.
“Sentiment has certainly subsided,” Federal Reserve Bank of Richmond President Thomas Barkin said during an interview on October 19. “People I talk to are still preparing for 2024.”
What happens with holiday shopping could help shape what the Fed does next.
The central bank is trying to slow growth for a reason: Inflation has been above 2 percent for 30 months now. To keep prices under control, policy makers feel they need to reduce demand.
The logic is quite simple. If rapid hiring continues and salary increases are rapid, those who are earning more money will feel confident and continue to spend. And if buyers are eager to buy restaurant dinners, new gadgets and updated wardrobes, it will be easier for companies to protect their profits by raising prices.
That’s why Fed officials are keeping an eye on how strong the consumer and job markets remain as they consider what to do next with interest rates. Policymakers are almost certain to leave rates unchanged at their meeting on November 1, and many of them have suggested that borrowing costs could be increased altogether.
But top officials kept alive the possibility of another quarter-point increase if economic data remains positive.
“We continue to focus on recent data showing the resilience of economic growth and labor demand,” Fed Chairman Jerome H. Powell said in a recent speech. “Monetary policy will be further tightened.”
So far, companies paint a mixed picture on the outlook. Many are suggesting that seasonal shopping is off to a strong start. halloween is spent expected to climb to a record $12.2 billion, up 15 percent from last year’s record of $10.6 billion, according to the National Retail Federation’s annual survey. The group is expected to release its holiday forecast this week.
Walmart reported strong sales during its back-to-school season, which its chief executive said is a good indicator of how spending will be during Halloween and Christmas.
“Typically when back-to-school is strong, it’s good with Halloween and Christmas,” Walmart chief Doug McMillon said on an earnings call in August.
But some companies are unsure. Hal Lawton, chief executive of Tractor Supply, said during an earnings call last week that the retailer was stocking up on fall and winter decorations — selling, for example. skeleton cow She was a “TikTok viral sensation”.
But “we acknowledge that there is a wide range of estimates for holiday, consumer spending that we have seen over the past few years,” he said.
And some analysts believe winter shopping could prove weak. Craig Johnson, founder of retail consultancy Customer Growth Partners, expects holiday sales to grow at a 2.1 percent rate, the slowest since 2012, he said in a report released Oct. 17.
“The fact that people had a good Halloween doesn’t mean they’ll have good holidays,” Mr. Johnson said. “It’s a different mentality of shopping and there’s no carryover – you won’t see costume lines extending from Halloween to Christmas.”
Retailers report that they are carefully watching how much inventory they have taken on for the holidays, and the Feds are also surveying it Professional Experience The words “slow,” “slow” or “slow” were referenced 69 times from about 12 of the Fed’s districts.
Part of the challenge in forecasting is that consumers seem to be splitting into two groups: Wealthy consumers continue to spend, while lower-tier shoppers either hold back or look for deals.
Department store chain Kohl’s says it is noticing this type of segmentation in its customer base and is adjusting its stores accordingly.
Shoppers at Kohl’s in Ramsey, NJ were greeted with an array of already discounted Christmas items such as miniature snowmen and ornaments at the front of the store. That design was intentional — Kohl’s executives want the section to attract deal-hungry shoppers.
But in a sign that higher earners could drive growth, it has also started to stock new categories of items such as decanters, wine glasses and electric corkscrews.
“We want to make sure we have the right breadth of assortment for the customer base that we have,” said Nick Jones, Kohl’s chief merchandising and digital officer. “And there’s an element of making sure everything has to be priced very well. “But great value doesn’t always mean low prices.”