Despite expectations of slower growth in both gross domestic product and retail sales, the economy should continue to perform well for the rest of this year, Jack Kleinhenz, chief economist at the National Retail Federation, said today.
“No one can predict exactly what surprises next year might hold, but the fundamentals of the economy are relatively stable and still on a sustainable path,” Kleinhenz said, adding that the ongoing recovery remains “highly dependent on consumer spending “. “Barring any unexpected shocks, it should continue to grow in 2024, although not spectacularly.”
“When the COVID-19 recession ended in April 2020, no one could have imagined that we would experience such a robust expansion, now heading into its fifth year,” he said.
Kleinhenz's comments came in the April issue of NRF's Monthly Economic Review, which noted that NRF last month forecast retail sales will rise between 2.5% and 3.5% in 2024. While this represents a slowdown from unusually rapid growth since the pandemic, the forecast is in line with the pre-pandemic 10-year average of 3.6%. Overall economic growth is expected to be moderate, but consumer spending is expected to continue as inflation begins to ease and job growth remains positive even as unemployment rises.
Adjusted for inflation, GDP is expected to grow about 2.3% year-on-year, slower than last year's 2.5% but still strong enough to sustain job growth that is boosting consumer spending. Consumer spending is expected to rise about 2%, compared to 2.3% last year.
“Consumers’ behavior and purchasing power depend on their financial health, and the consumer sector is looking good right now,” Kleinhenz said.
While wage growth is expected to moderate to 3.5% by year-end and employers are expected to add about 100,000 fewer jobs each month, disposable personal income rose 4.1% year-over-year in February. Rising property and stock prices outpaced inflation in 2023, helping to boost household wealth by 8% year-on-year in the fourth quarter and boosting consumer spending through the “wealth effect,” which is expected to continue into 2024 due to amid tighter lending and inflation, the Federal Reserve Bank of New York reported in February that more consumers said access to credit was easier than a year ago, and the University of Michigan said consumer confidence was at its highest level since July 2021 .
Still, NRF is watching wages and income data “very closely” as slower employment and wage growth are key factors behind slower GDP and spending growth expectations.
Meanwhile, a combination of moderate wage growth, supply chain recovery, slightly weaker consumer demand and higher interest rates have helped bring inflation down significantly. While there was a slight price increase at the beginning of 2024, Kleinhenz assumes that inflation will steadily fall and will be 2.2% year-on-year by the end of the year.
Interest rates could also fall. Citing Fed Chairman Jerome Powell's comments last month that the economy has made “significant progress” and inflation has “eased significantly,” Kleinhenz expects the Fed to keep interest rates stable until June, then it will probably cut interest rates by a quarter of a percentage point. Subsequent cuts in September and December could bring the total reduction to three-quarters of a percentage point.
As the retail industry's leading authority and voice, NRF analyzes the economic conditions impacting the industry through reports such as the Monthly Economic Review.
About NRF
The National Retail Federation is passionate about the people, brands, policies and ideas that make retail thrive. From its headquarters in Washington, DC, NRF strengthens the industries that power the economy. Retail is the nation's largest private employer, contributing $5.3 trillion to annual GDP and supporting more than one in four jobs in the U.S. – 55 million working Americans. For over a century, NRF has been a voice for every retailer and every retail profession, educating, inspiring and communicating the powerful impact retail has on local communities and the global economy. nrf.com
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