Economic growth has withstood inflation, high interest rates and other challenges in 2024 and should remain strong in 2025, according to National Retail Federation Chief Economist Jack Kleinhenz.
In speaking as part of NRF’s Monthly Economic Review, Kleinhenz said annual gross domestic product looked to be on track to grow 2.7% over 2023, based on results for the first three quarters and data from the first two months of 2024’s final frame. Expectations for 2025 GDP growth are between 2% and 2.5%, although “the range of uncertainty is wide and this estimate could change,” Kleinhenz stated.
The impressive resiliency of the consumer and a sturdy labor market were 2024 hallmarks, as consumer spending supported by low unemployment and wage gains outpaced inflation, Kleinhenz said, even as employers slowed hiring. The 1.8 million ongoing claims for unemployment insurance in the week ending December 21, 2024, were only 40,000 higher than in the same period a year earlier, and new filings fell from 219,000 that week to 211,000 the following week. Average hourly wages advanced 4.4% on an annualized three-month average in November.
Year-over-year inflation, as measured by the Personal Consumption Expenditures Price Index, a statistic the United States Federal Reserve prefers, fell to 2.4% year over year as of November. The figure was close to the Fed’s goal of 2% and substantially less than the 3.9% year-over-year increase in wages measured by the quarterly Employment Cost Index.
Consumer spending on both goods and services grew 5.5% year over year unadjusted for inflation in November and December combined as disposable personal income gained 5.2%, year over year, helping boost consumer purchasing. Core retail sales, as defined by NRF, which exclude automobile dealers, gasoline stations, and restaurants revenues, increased 4% year over year on a three-month moving average as of November and 3.8% for 2024’s first 11 months. Although December figures won’t come out until next week, spending is on track to meet or exceed NRF’s projection for holiday shopping season sales growth of between 2.5% and 3.5% from the 2023 period.
The Fed, in the aftermath of a quarter-point interest rate reduction in December, is attempting to “thread a needle of lowering rates but at a pace that won’t undo recent progress on inflation,” Kleinhenz said. So, Fed officials have indicated that they are likely to lower rates by only half a point in 2025 rather than the previously expected full percentage point.
“The U.S. economy ended 2024 on a high note and the outlook looks promising for 2025,” Kleinhenz said in the review. “Recent performance shows the economy is on solid footing and has been growing at a steady pace and above its historical average. The labor market is healthy, unemployment is low, inflation has fallen almost to the Federal Reserve’s target even though it remains somewhat sticky, and the direction of interest rates remains lower.”
As he looks ahead, Kleinhenz added: “I don’t want to get ahead of our annual forecast, but there is good reason to expect healthy economic growth in 2025 even though its shape will depend upon a lot of moving parts.”
Key factors could include changes to trade, immigration, regulation, tax and spending policies and their impact on economic activity, “but the resilience of the U.S. consumer should hopefully remain part of the dominant narrative,” Kleinhenz said.
