Economists in 2023 have been warning that a recession might be on the horizon as the Federal Reserve continues to raise interest rates. However, some companies, like Soergel Orchards in Pennsylvania, are not experiencing any slowdown. Sales at the orchard are up, even with fewer attendees at their fall festival due to rainy weekends. Demand at their hard cider shop and Christmas decorations store is also strong. This unexpected boom in consumer demand is defying expectations for a slowdown and contributing to strong overall economic growth. The economy expanded at a rapid 4.9 percent annual rate in the third quarter, surpassing the typical 2 percent growth pace considered standard by the Fed.
This strong growth is great news for American companies, but it has also caused confusion. Economists are wondering why the economy is still growing quickly despite the Fed’s efforts to slow it down. They are also uncertain about how long this upswing will last. The Fed has raised interest rates to over 5.25 percent, making borrowing more expensive for mortgages, business expansion, and credit card balances. While some parts of the economy have felt the effects, such as slower existing home sales, employers are still hiring and families continue to spend.
As the holiday shopping season approaches, it is difficult to predict what will happen next. A strong job market and cooling inflation could give consumers the ability to keep driving the economy forward. However, many companies are being cautious about building up too much inventory or having overly optimistic sales outlooks. They are concerned that higher borrowing costs, along with smaller savings and the effects of inflation, could make Americans more frugal.
If holiday shopping remains strong, it could influence the Fed’s actions. The Fed has been trying to slow down growth because inflation has been above 2 percent for the past 30 months. To control prices, policymakers believe they need to reduce demand. The Fed is closely watching how consumers and the job market perform as they decide what to do next with interest rates. Rates are expected to remain unchanged at the November 1 meeting, and some officials have suggested that they may stop raising borrowing costs altogether.
However, there is still a possibility of a final quarter-point increase if economic data remains strong. Fed Chair Jerome H. Powell has stated that they are observing the resilience of economic growth and labor demand. Surprises in economic data that pose risks to inflation progress could warrant further tightening of monetary policy.
Some companies are optimistic about the outlook, with many suggesting that seasonal shopping has started off strong. Halloween spending is expected to reach a record $12.2 billion, up 15 percent from last year, according to the National Retail Federation’s annual survey. Walmart has reported strong sales during the back-to-school season and expects the momentum to continue during Halloween and Christmas.
However, some companies are uncertain about the holiday season. The Tractor Supply CEO mentioned that they are stocking up on fall and winter decor but acknowledge the broader range of estimates for holiday consumer spending. Analysts like Craig Johnson predict weak winter shopping, with holiday sales growing at the slowest rate since 2012. The challenge in forecasting is that consumers seem to be splitting into two groups, with wealthier consumers continuing to spend while the bottom tier of shoppers either pulls back or seeks deals.
Retailers are carefully monitoring their inventory for the holidays. A Fed survey found that “slow,” “slower,” or “slowing” were mentioned 69 times in reference to business experiences across the Fed’s 12 districts.
The challenge lies in the fact that consumers are divided into two groups. Wealthier consumers continue to spend, while the lower tier of shoppers either holds back or looks for discounts. This bifurcation of consumers is evident in stores like Kohl’s, which is adjusting its stores to cater to both types of shoppers. Kohl’s has discounted Christmas items for deal-hungry shoppers, while also stocking new category items for higher-earning consumers.
