As the United States Federal Reserve dropped the prime interest rate by another quarter point, the National Retail Federation maintained economic progress, despite some mixed indicators, should continue to support holiday retail sales growth.
The latest government data indicated the economy had gained only 12,000 jobs during October and the annual pace of gross domestic product growth had slowed to 2.8% in the third quarter from 3% in the second. However, NRF Chief Economist Jack Kleinhenz pointed out the drop in job numbers was a temporary glitch resulting from the effects of Hurricanes Helene and Milton along with major labor union strikes. Employment had gained 104,000 jobs on a three-month average. GDP growth was still “surprisingly strong,” continuing a 10-quarter string of solid increases despite inflation and high interest rates as consumer spending “continued to contribute a lot of horsepower,” he said
Salaries and wages as measured by the Employment Cost Index gained 3.9% year over year as of September, the slowest growth since late 2021 but well above inflation, Kleinhenz noted. The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, fell to year-over-year growth of 2.1% in September, a tick above the Fed’s 2% target and the lowest rate since February 2021. At this point, inflation almost all resides in the services rather than the goods sector of the economy.
“The economic data calendar was quite busy at the end of October, but while there were contradictions and mixed signals, we continue to believe the U.S. economy remains in a good place,” Kleinhenz said in NRF’s Monthly Economic Review. “Most importantly, the new data doesn’t change our 2024 holiday forecast or retail sales projections for the year.”
One development that’s still too early to factor into immediate economic prospects is the now concluded presidential election, Kleinhenz said. Yet, with household balance sheets bolstered by a strong stock market, rising home values and income gains, the holiday outlook remains positive overall.
“Putting all these considerations together, this holiday season looks very good,” Kleinhenz said. “Households are starting the season in decent financial shape and are managing the constraints of their paychecks, with growth in wages and salaries still supportive of a steady pace of spending. The economy remains on solid footing and is growing faster than many expected.”
