NRF economist: No sign of recession, consumer spending will grow

WASHINGTON – The chief economist for the National Retail Federation cited labor markets and interest rates as key players in the 2024 economy.

After what he called a better-than-expected performance in 2023, NRF Chief Economist Jack Kleinhenz said he believes that consumer spending will continue to grow, but at slightly less than overall GDP growth.

“Consumers were in decent shape heading into the holiday season, but the labor markets, while unlikely to unravel, do look likely to cool, which would impact consumer expectations and, in turn, affect spending decisions,” he said, noting, “There is still a risk that keeping rates too high could curb the economy’s momentum more than necessary. Yet if (The Fed) lowers rates too soon, it could allow the economy to re-inflate and make it harder to contain inflation pressures.”

Kleinhenz’s comments came in the February issue of NRF’s Monthly Economic Review, which reports the economy “has been more resilient than expected” and shows “no sign of a recession,” citing the 3.3% annual growth in gross domestic product for the fourth quarter and 2.5% for the year.

While disposable personal income was up 6.9% year over year in December, the Fed’s preferred measure of inflation – the Personal Consumption Expenditures Price Index –was at 2.6% year over year in December, down from 5.5% at the beginning of the year.

January 2024 retail sales haven’t been reported, but consumer sentiment was at its highest level in nearly three years as shoppers appeared to be more upbeat about the economy, income and employment.

Kleinhenz said part of the recent pace of economic growth and lower inflation may be explained by a sharp acceleration in productivity, which he noted help mitigate inflation fueled by supply issues in particular.

“While productivity growth offers positive news regarding economic growth and the goal of reducing inflation, there is not enough evidence to be sure it will continue,” he cautioned, noting that the average annual rate of productivity growth each quarter since the beginning of the pandemic is about the same as for the past 15 years.

While the Fed left interest rates unchanged this week, the central bank has said evidence of inflation easing is necessary before rate cuts will be considered.

See also: NRF economist: Consumer spending growth ‘not necessarily sustainable’ in 2024

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