NRF says economy remains ‘sturdy’ despite
forecast for slower growth

Despite expectations for slower growth of both gross domestic product and retail sales, the economy should continue to do well the remainder of this year, National Retail Federation Chief Economist Jack Kleinhenz said today.

“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. “Barring unexpected shocks, it should continue growing in 2024, although not spectacularly.”

“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,” he said.

Kleinhenz’s comments came in the April issue of NRF’s Monthly Economic Review, which noted that NRF forecast last month that 2024 retail sales will grow between 2.5% and 3.5% in 2024. While that marks a slowdown from the unusually rapid growth seen since the pandemic, the projection is in line with the 10-year pre-pandemic average of 3.6%. Overall economic growth is expected to be modest, but consumer spending should hold up as inflation slows gradually and job growth remains positive even as unemployment rises.

Adjusted for inflation, GDP is expected to grow about 2.3% year over year, slower than last year’s 2.5% but still strong enough to sustain job growth that drives consumer spending. Consumer spending is expected to be up about 2%, which compares with 2.3% last year.

“Consumers’ behavior and spending power are tied to their financial health, and the consumer sector looks good at the moment,” Kleinhenz said.

While 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 was up 4.1% year over year in February. Rising home and stock prices outpaced inflation in 2023, helping boost household wealth by 8% year over year in the fourth quarter and stimulating consumer spending via the “wealth effect,” which should carry over into 2024. While many consumers are feeling a pinch from tighter credit and inflation, the Federal Reserve Bank of New York reported in February that more consumers said it was easier to access credit than a year ago, and the University of Michigan said consumer confidence reached its highest level since July 2021.

Nonetheless, NRF is watching payroll and income data “very closely” since the slower job and wage gains are key factors behind the slower growth expectations for GDP and spending.

Meanwhile, a combination of moderating wage growth, supply chain healing, slightly weaker consumer demand and higher interest rates have helped bring down inflation meaningfully. While there was a slight reacceleration in prices at the start of 2024, Kleinhenz expects inflation to steadily move down and be at 2.2% year over year by the end of the year.
Interest rates could also be on their way down. Citing remarks by Fed Chairman Jerome Powell last month that the economy has made “considerable progress” and that inflation “has eased substantially,” Kleinhenz expects the Fed to hold rates steady until June, when it will likely 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.