National Retail Federation Chief Economist Jack Kleinhenz said strong economic performance in 2024 is likely to carry over and influence growth this year, but a wide range of uncertainty exists as the White House and Congress make decisions that will impact the economy.
National Retail Federation Chief Economist Jack Kleinhenz said strong economic performance in 2024 is likely to carry over and influence growth this year, but a wide range of uncertainty exists as the White House and Congress make decisions that will impact the economy.
Kleinhenz’s comments came as part of the March edition of NRF’s Monthly Economic Review, which noted that gross domestic product adjusted for inflation grew 2.8% in 2024, with robust consumer spending fueling economic activity and making a consistent contribution to growth. Overall consumer spending unadjusted for inflation was up 2.8% year over year in 2024 and core retail sales, excluding automobile dealers, gasoline stations and restaurants, were up 3.6% unadjusted.
Consumers remained engaged in January. According to Kleinhenzore, with retail sales slipping 0.9% from December after a solid holiday season but rising 4.2% year over year. He said demonstrating consumer fundamentals in early 2025 remain strong and are not showing significant stress indications.
Job growth has buoyed consumer spending and wage growth. Although the 143,000 jobs added in January were down from 207,000 in December, the unemployment rate fell to 4% after holding between 4.1% and 4.2% since June. The data shows signs of worker scarcity rather than labor market slack.
Inflation increased more sharply than anticipated in January, with the Consumer Price Index gaining 3% year over year versus 2.9% in December, and producer prices increased 3.5%. Inflation has been rising since last October. Kleinhenz said, “The critical question is whether the trend will continue. Given the hot January inflation readings for consumer and producer prices alike, the United States Federal Reserve is unlikely to cut interest rates anytime soon.”
Consumers surveyed for the University of Michigan’s Index of Consumer Sentiment in February stated they expect inflation to rise to 4.3% this year, up from 3.3% expected in January. The figure is the highest inflation expectation since November 2023 and “likely reflected a concern about tariff-induced price increases,” Kleinhenz said.
The new number came as the index dropped to a low reading of 64.7 in February from 71.7 in January, the second monthly decline after five months of small gains.
“While the U.S. economy has entered 2025 with a fair amount of momentum, the mix of policies being debated on immigration, tariffs, deregulation and taxes blur the economic outlook and its narrative, with many crosscurrents at work,” Kleinhenz said. “While deregulation and tax cuts could provide positive momentum, immigration restrictions and tariffs could be a drag on the economy and have adverse effects. Although recent economic data remains strong, we are concerned about the downside risks.
“Weak consumer perceptions and uncertainty from the lack of clarity regarding future government policies and regulations can significantly hinder business operations,” Kleinhenz added. “That, in turn, can cause a hesitation in consumer spending and make it difficult for companies to make investment and hiring decisions. We are watching carefully and hoping for the best as much depends on how and when these policies are put in place.”
