More Retailers Say They Can’t Pay Rent, Even As Shoppers Keep Shopping

Consumer spending is expected to rise this year, but retailers aren't out of the woods yet. Many are still struggling with rents, which have been rising with inflation.

Thirty-four percent of small retail businesses couldn’t make rent in April, up 6 percentage points from February, Retail Dive reports, citing survey data from Alignable. Retailers pointed to inflation, gas prices, supply chain issues, labor shortages and reduced revenues as compounding their financial woes.

But retailers may not have to worry about shoppers backing off for long, in part because inflation is going to slack off somewhat later this year, National Retail Federation Chief Economist Jack Kleinhenz writes in the organization's Monthly Economic Review for May. The NRF predicts that retail sales for 2022 will rise between 6% and 8% to between $4.86T and $4.95T, a rate that is ahead of inflation forecasts for the year. 

The Bureau of Economic Analysis' Personal Consumption Expenditures Index, a widely tracked measure of consumer inflation, hit 6.6% in March, the highest level in decades. That is expected to slow as the supply-demand imbalance that has characterized the U.S. economy since the end of pandemic lockdowns eases. The Federal Reserve's median forecast for this metric at the end of 2022 is now 4.3%, up from the 2.6% forecast in December 2021.

Despite that relatively high rate of inflation for the year and the potential for some slowdown in the economy, "underlying strength and momentum from both the consumer and business sectors are likely to offset a modest slowdown and should leave the economy bustling forward this year,” according to Kleinhenz.

The Fed, which is expected to raise interest rates half a percentage point Wednesday afternoon, will continue to raise the federal funds rates to try to tamp down inflation, reaching 1.875% by the end of the year and a range of 2.5% to 2.75% in 2023, the highest mark since March 2008, according to Kleinhenz. 

"How much and how fast the Fed raises rates will, of course, depend on how the economy performs in the months ahead," he says. "While policymakers would like to raise interest rates gradually, more aggressive action may be needed and appears to be the direction that will be taken."