Business Outlook for Retailers


Businesses navigated a choppy and challenging 2022 by being nimble, creative, and disciplined. They will need each of these skills plus a little luck to succeed in what is likely to be a choppy and challenging 2023. 

The past year will be remembered for the Federal Reserve’s interest rate hikes that attempted to tame inflation by slowing the economy.  It will also be remembered for high, but declining inflation and a resilient job market that fueled both wage growth and strong consumer spending.  This spending drove demand for everything from housing to cars to vacation rentals. But as interest rates rose steadily throughout the year, demand froth began to subside and prices for many items in short supply came down.

As we enter 2023, employment remains high and wage growth strong, supporting the American consumer’s ability to spend.  However, cracks in demand are beginning to appear.  Higher interest rates have slowed home purchases and new and used auto sales.  Consumers are still spending but many have eaten into their savings and increased their credit card debt to do so. 

In addition, home equity is eroding under the pressure of higher interest rates, making it hard for consumers to use cash-out refinancings to fuel consumption.  A weakening of the U.S. consumer generally has a negative effect on U.S. businesses since business revenue is derived from consumer spending. 

Many businesses will also struggle to obtain the capital required to fund their daily operations. Banks are now facing increasing delinquency rates, higher borrowing costs and deposit outflows as consumers burn through their savings and chase higher yields from non-bank investment opportunities. As a result, many banks are being forced to reduce lending to businesses and raise prices. This means higher cost of capital and fewer options for growing businesses.

The following lays out our expectations at Kapitus for the business economy in 2023 and how specific business industries will be impacted. 

Foot traffic returned to bricks-and-mortar retail in 2022, and we expect 2023 to be similar to the previous year from a demand perspective. Supply chains have normalized over the past year, but the recent spike in COVID cases in China could have an impact on goods sourced in Asia during the first half of 2023.

Consumers purchased a lower percentage of goods online in 2022 than they had during the pandemic, and we expect the percentage of purchases made online to grow slightly in 2023. However, it is clear that consumers want both the convenience of shopping online and the ability to interact with the products they buy in person, making each channel an important resource for the future.

Key factors impacting businesses this year:

  • Inflation: Economic discussions in 2022 were dominated by the surge in inflation and the Federal Reserve’s quest to bring it under control. 

Unemployment has remained low and job vacancies high throughout the Fed’s tightening cycle, despite efforts to reduce demand.As a result, wage inflation remains high, and we expect the Federal Reserve to continue raising rates in 2023 until wage growth and job vacancies are brought in line with historical levels. 

We forecast inflation to remain above the Fed’s 2% target rate throughout 2023 with several more rate increases to come. However, we do expect the Fed’s action to ultimately succeed in slowing the economy and reducing inflation rates, especially in the second half of the year.

  • Global Supply Chain: The global supply chain made a dramatic recovery in 2022 as the world opened-up from the pandemic and stimulus-driven excess demand subsided.  Russia’s invasion of Ukraine disrupted oil and grain markets causing spikes in energy and food prices, but the market has largely compensated for these disruptions, and we expect the normalization of supply chains that we experience in 2022 to continue into 2023. 

Potential wild cards disrupting this prediction would include an escalation of the war in Ukraine — or the introduction of another significant conflict such as the invasion of Taiwan.  Also, while we believe that the worst of COVID is behind us, China continues to struggle with the virus.

  • The political environment:  With Republicans taking control of the House and Democrats holding the Senate and the White House, major economic legislation appears unlikely in 2023. 

  A very small Republican majority in the House lends power to the more extreme elements of the party, which could make governing difficult for the Speaker of the House who will need to negotiate with multiple constituents in order to move critical legislation forward.  We expect to see at least the credible threat of a government shutdown in 2023, leading to market volatility and a potential impact on interest and currency rates.


Businesses owners are creative and resilient having managed through the pandemic, inflation, demand fluctuation and supply chain disruptions.  Despite the challenges they face today, businesses will adapt to whatever changes 2023 brings and move to meet the market where consumers are.  This is the strength of our capitalistic system and the backbone of the U.S. economy.

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