The June issue of the National Retail Federation’s (NRF) Monthly Economic Review just hit the streets, and the big focus — with toy industry ramifications — remains on inflation.
According to the NRF Chief Economist Jack Kleinhenz, the Federal Reserve has many challenges ahead in balancing inflation, but it is unlikely that any major backfire is coming for the U.S. economy.
“With changes underway that focus on taming inflation without splintering the economy, the nation’s economic system is in the process of being rebalanced in ways that are testing its resilience,” Kleinhenz says. “This is an extraordinary period with unprecedented factors that include inflation at a 40-year high, uncertainty over the war in Ukraine, supply chain disruptions, and the Federal Reserve raising interest rates. There’s a good reason why businesses, consumers, and policymakers alike all feel uneasy. Though many people fear an extreme cooling off of the economy, there is not an overwhelming amount of evidence to support such predictions. In general, the data suggests that we remain in an ongoing expansion.”
U.S. retail sales for April spiked 6.4% year-over-year, and the three-month rolling average reveals a 7.1% year-over-year gain.
Consumer spending is moving into different categories as families adjust to the reopening of the world following two years of life within the COVID-19 pandemic, and job growth — 428,000 were added in April — and near-record-low unemployment levels are fueling spending.
Still, job growth and wage increases are not catching up to inflation, which remains at a 40-year high. Quite simply, consumer spending is up, but their dollar doesn’t buy what it did a year ago.
“The Fed has a tricky job on its hands,” Kleinhenz says. “Increased interest rates will mean higher borrowing costs across the economy at the same time higher prices keep eroding the purchasing power of the U.S. consumer. But the central bank needs to act in order to prevent inflation from being baked into the economy and to reduce the risk that expectations of inflation will become unanchored.”
In terms of mixed messaging for the toy industry, record growth appears to be cooling amid the category spending shift. A public-facing update on sales numbers for the U.S. toy industry is expected to emerge shortly. Stay tuned to the Toy Book for the news as it breaks.
