Despite expectations for slower growth of gross domestic product and retail sales, the economy should continue to advance through the remainder of this year, National Retail Federation Chief Economist Jack Kleinhenz said as part of the April NRF Monthly Economic Review.
Although wage growth should ease toward 3.5% by the end of the year and employers should create about 100,000 fewer new jobs each month, disposable personal income gained 4.1% year over year in February, Kleinhenz noted. Home and stock prices rose faster than inflation in 2023, helping boost household wealth by 8% year over year in the fourth quarter and stimulating consumer spending via the wealth effect, a phenomenon that should carry over into 2024. Many consumers may feel a pinch from tighter credit and inflation, but the Federal Reserve Bank of New York reported in February more consumers said it was easier to access credit than a year ago.
Still, NRF is watching payroll and income data “very closely” since slower job and wage gains are key factors behind the lower growth expectations for GDP and spending, Kleinhenz said.
Meanwhile, a combination of moderating wage growth, supply chain healing, slightly weaker consumer demand and higher interest rates have helped bring down the inflation rate meaningfully, Kleinhenz added. Prices accelerated slightly at the start of 2024, but he expects inflation to steadily move down and reach 2.2% by the end of the year.
Interest rates cuts may also occur. Citing remarks by United States Federal Reserve Chairman Jerome Powell last month indicating that the economy has made “considerable progress” and that inflation “has eased substantially,” Kleinhenz said the Fed will likely hold rates steady until June, when it conceivably could cut rates a quarter of a percentage point. Subsequent cuts in September and December could bring the total reduction to three-quarters of a percentage point by year’s end.
Last month, NRF forecast 2024 retail sales will grow between 2.5% and 3.5%. Although that marks a slowdown from the unusually rapid growth seen since the pandemic, the projection is close to the 10-year pre-pandemic average of 3.6%, NRF maintained. Overall, the organization expects economic growth to be modest, but consumer spending should hold up as inflation slows gradually and job growth remains positive even as unemployment rises. The forecast for GDP growth is about 2.3% year over year sans inflation, slower than last year’s 2.5% yet strong enough to sustain job growth that drives consumer spending. For its part, consumer spending gains should come in at about 2% year over year, according to the NRF forecast, which compares with 2.3% in 2023.
“No one can accurately forecast what surprises the next year might hold, but the foundation of the economy is relatively sturdy and still on a sustainable path,” Kleinhenz said, adding that the continuing recovery remains “highly reliant” on consumer spending as the economy evolves through the year.
“Barring unexpected shocks, it should continue growing in 2024, although not spectacularly,” he said. “No one could have imagined when the COVID-19 recession ended in April 2020 that we would have experienced such a resilient expansion that is now headed toward its fifth year. Consumers’ behavior and spending power are tied to their financial health, and the consumer sector looks good at the moment.”
