‘Downward Revisions’ to Consumer Spending, Jobless Claims Cloud Merchants’ Outlook

Economic data can be a work in progress — refined, revised and re-presented to better understand where things stand.

For merchants, the big picture got a little dimmer as GDP and jobless claims data illuminated the pressures on consumers — the key engine driving the economy.

The government’s latest revision to GDP shows a 2.6% growth rate in the fourth quarter of last year, representing a deceleration from the 3.2% rate seen in the third quarter — and down from the 2.7% fourth-quarter rate that had been previously estimated. In part, a deceleration in consumer spending led to the downward revision. In a “technical note,” the U.S. Bureau of Economic Analysis (BEA) said that with lower consumer spending, a downward revision to services was driven by a slowdown in financial services, “other” services (led by personal care services) and transportation services (mainly motor vehicle maintenance and repair). These revisions reflect a pullback in what might be termed discretionary spending.

Looking Backwards and Looking Ahead

It’s also important to note that the GDP data is a few months old now. Since the end of the fourth quarter, other information has come to light that shows that, in February, U.S. retail sales were down 0.4% from January. As we reported earlier this month, consumers have been spending less on restaurants and department stores and focusing more heavily on buying essentials.

In another data point that could signal pressure ahead for consumer spending, the Labor Department reported Thursday that initial jobless claims were up in the past week — to 198,000, higher than the 195,000 tally estimated by economists. Though unemployment remains low, the boost in filings may be only the beginning of upward trajectories in unemployment. That would, of course, dent consumer confidence when it comes to spending.

Consumer confidence is a fragile thing. PYMNTS reported this week that “American consumers are gloomy about current economic conditions but confident in the future.” The Conference Board said Tuesday (March 28) that its Consumer Confidence Index had risen slightly in March, from 103.4 to 104.2. Based on consumers’ short-term outlook for income, business and labor market conditions, the board’s Expectations Index rose from 70.4 in February to 73, with an important caveat.

“For 12 of the last 13 months — since February 2022 — the Expectations Index has been below 80, the level which often signals a recession within the next year,” the board said.

Expectations and perceptions tend to become self-fulfilling prophecies: Consumers (already living paycheck to paycheck) expect that they’ll need to rein in spending now, even if things look brighter on the horizon, which leads to a near-term drag on spending at Main Street businesses. That leads to volatile conditions at those businesses, which leads them to lay people off — and the negative feedback loop continues.

In the meantime, as noted here, retailers are already on record stating that they see a “soft” 2023 ahead. Thursday’s economic data will do little to dispel those notions.