Halloween shoppers don’t get spooked because an economic slowdown is still a ways off

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 Soergel Orchards in western Pennsylvania, there’s no slowdown in sight.

“People are buying decorative things,” said Amy Sorgel, the company’s manager, who explained that pumpkins and cornstalks are in high demand, and that customers come to pick pumpkins and apples. “People like choice – people will choose anything.”

Sales rose even though a series of rainy weekends hampered attendance at the farm’s annual fall festival. Demand at the hard cider store has been strong. The store owners are preparing for a strong season at their store, which sells Christmas decorations.

Soergel’s buzzy acts are a microcosm of the trend across the country. Consumer demand unexpectedly boomed in 2023, defying widespread expectations of a slowdown and helping to fuel strong overall growth. The economy expanded at a staggering annual rate of 4.9 percent in the third quarter, much faster than the annual rate About 2 percent Federal Reserve officials believe this pace is a record growth pace.

This is great news for American companies. But it’s also a source of confusion. Why is the economy still growing so fast more than a year and a half into the Fed’s campaign to slow it, and how long might this rise last?

Federal Reserve officials raised interest rates above 5.25%, making it more expensive to get a mortgage, borrow to expand a business, or maintain a credit card balance. These moves were intended to spread through the markets to calm the real economy. Some parts of the economy have felt the pressure – existing home sales I slowed down, For example. However, employers continue to hire, and families continue to spend.

It’s hard to predict what’s coming next with the all-important holiday shopping season right around the corner. A strong labor market can combine with subdued inflation to give consumers the means to continue moving the economy forward. But many companies are careful not to build too much inventory or forecast too aggressive sales forecasts, fearing that higher borrowing costs will collide with smaller savings piles and the cumulative effects of more than two years of rapid inflation to make Americans more frugal.

“Sentiment is definitely low,” Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an interview on October 19. “The people I’m talking to are still taking aggressive measures in preparation 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. In order to control prices, policymakers believe they need to reduce demand.

The logic is fairly simple. If rapid hiring continues and wage gains prove rapid, people who earn more money will likely feel confident and continue spending. If shoppers 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 monitoring the strength of consumers and the labor market while considering what to do next with interest rates. Policymakers will almost certainly leave interest rates unchanged at their meeting on November 1, and a number of them have suggested they may finish raising borrowing costs entirely.

But senior officials kept alive the possibility of a final quarter-point increase, if economic data remains buoyant.

“We are alert to recent data showing resilience in economic growth and labor demand,” Fed Chairman Jerome Powell said in a recent speech, adding that continued surprises “could jeopardize further progress on inflation and could justify further policy tightening.” “Cash.”

So far, companies present a mixed picture of the outlook. Many point out that seasonal shopping is off to a strong start. Spending on Halloween is It is expected to rise to a record $12.2 billion, up 15 percent from last year’s record $10.6 billion, according to the National Retail Federation’s annual survey. The group is expected to publish its holiday forecast this week.

Walmart reported strong sales during the back-to-school season, which its CEO noted was a good indicator of how spending will look during Halloween and Christmas.

“Normally when back-to-school is strong, that bodes well for what happens with Halloween and Christmas,” Doug McMillon, Walmart’s president, said on an earnings call in August.

But some companies aren’t sure. Hal Lawton, CEO of Tractor Supply, said during a phone call last week that the retailer was stocking up on fall and winter decor — selling, for example, Skeleton cow It was a “viral sensation on TikTok.”

“But we acknowledge that there is a wider range of estimates for holidays and consumer spending than we have seen over the past two years,” he added.

Some analysts believe that winter shopping may be weak. Craig Johnson, founder of retail consulting firm Customer Growth Partners, expects holiday sales to grow 2.1 percent, the slowest since 2012, he said in an Oct. 17 report.

“The fact that people had a good Halloween doesn’t necessarily mean they’re going to have a good holiday,” Johnson said. “It’s a different buying mentality and there’s no carryover – you won’t see clothing lines from Halloween spilling over into Christmas.”

Retailers reported that they were carefully monitoring how much inventory they headed into over the holidays, and the Fed cleared it Business experiences From across the Fed’s 12 regions they referenced the word “slow,” “slower,” or “sluggish” 69 times.

Part of the challenge in forecasting is that consumers seem to be divided into two groups: Wealthier consumers continue to spend even as the lower tier of shoppers retreat or look for deals.

Department store chain Kohl’s says it’s seeing this kind of bifurcation happening in its customer base and is adjusting its stores accordingly.

Shoppers at Kohl’s in Ramsey, New Jersey were greeted with an array of already discounted Christmas items like miniature snowmen and ornaments at the front of the store. This design was done on purpose — Kohl’s executives want the department to attract deal-hungry shoppers.

But in a sign that higher incomes can fuel growth, it has also begun stocking new category items like pitchers, wine glasses and switches.

“We want to make sure we have the right breadth of assortment that matches the customer base that we have,” said Nick Jones, Kohl’s chief marketing and digital officer. “This is an element of making sure everything has to be a great value. But great value doesn’t always mean low price.”