Economic growth in the United States slowed in the first quarter of 2024, but consumers are still spending more than they did last year, according to National Retail Federation Chief Economist Jack Kleinhenz.
In NRF’s Monthly Economic Review, Kleinhenz noted gross domestic product grew 1.6% in the first quarter, less than half the 3.4% seen in the 2023 fourth quarter and the lowest level since 2.1% in the second quarter of last year.
Recently released employment numbers for April pointed to continued economic growth but a softening labor market trend. Payrolls grew by 175,000 jobs in April, while the unemployment rate rose slightly to 3.9%, which compared with 3.8% in March.
Although wage gains have supported workers’ ability and willingness to spend, higher wages are unwelcome news for U.S. Federal officials trying to contain inflation pressure. As it pointed to continued high inflation, the Fed left interest rates unchanged at a meeting last week, a development many observers expected but that also suggested a delay in a rate reduction that might have come in June.
“The U.S. economy lost some spring in its step during the first quarter as the pace of growth declined, and the downshift came with an unexpected bout of inflation,” Kleinhenz said, noting prices for services are still increasing as prices for goods level off. “But even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses.”
Kleinhenz added, “While substantial progress has been made on inflation since its peak in 2022, high prices are sticking around longer than expected.”
The Personal Consumption Expenditures Price Index, a Fed preferred metric, had year-over-year inflation, driven largely by prices for services, hitting 3.4% during the first quarter versus 1.8% in the previous period. Yet, that’s only part of the picture, Kleinhenz maintained. “Consumers clearly remain willing to spend on both goods and services despite ongoing cost pressures,” he said.
Consumer spending growth fell from 3.3% in the fourth quarter but still increased 2.5% year over year during the first quarter. As reported by the U.S. Census Bureau, total retail sales were stronger than expected in March, rising 4% after gaining 2.1% in February.
The spending growth came amid economic data suggesting the overall U.S. economy remains in good shape, Keinhenz indicated, driven largely by an “incredible labor market” with solid job growth and rising wages.
The three-month average payroll advance reached 276,000 in March, the fastest pace in a year, and the latest Economic Cost Index showed that year-over-year private industry wage growth averaged 4.3% in the first quarter, unchanged from the 2023 fourth quarter. In March, job openings fell to their lowest level in three years, however, signaling the labor market is loosening and may be taking pressure off wage growth.
“With the labor market still rebalancing, economic growth still steady and financial conditions easy, we expect the Fed will likely push out the decision on easing of interest rates for some time yet,” Kleinhenz said.
