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Consumers Remain ‘Willing to Spend’ Even as Growth Slows, NRF Says



Consumers are still willing to buy even as smaller job and wage gains and high interest rates are slowing the growth of consumer spending, National Retail Federation (NRF) chief economist Jack Kleinhenz says.


“U.S. economic growth for the remainder of this year will depend on several factors but particularly the pace of job growth, inflation and what actions will be taken by the Federal Reserve,” Kleinhenz says. “The good news is that the economy is growing, inflation is moderating and overall fundamentals look fine as increased consumer spending supports underlying momentum.”


According to the June issue of NRF’s Monthly Economic Review, gross domestic product is still expected to grow about 2.3% over 2023 but that employment is now expected to grow by an average 180,000 jobs per month and about 50,000 higher than expected this spring. Inflation as measured by the Personal Consumption Expenditures Price Index (PCE) is expected to drop to about 2.2% by the end of the year, close to the Federal Reserve’s target of 2%.


“The biggest change in the economic outlook since our initial projections is that immigration has been much stronger,” Kleinhenz says. “New immigrants have increased the supply of workers, raising production capacity, closing some shortages in the labor market and allowing the economy to generate jobs without overheating and accelerating inflation.”


Inflation was higher than expected in the first few months of the year, but much of it was driven by prices for services and the trend is expected to be short-lived, Kleinhenz says. Overall year-over-year inflation stood at 2.7% in March, according to the PCE index. But the figure was driven by service-sector prices, which were up 4% while prices for goods were unchanged from a year earlier and have been gradually declining.


“The Federal Reserve has reinforced its belief in being data-dependent and that means inflation needs to go down for several consecutive months before the central bank is going to cut rates,” Kleinhenz says. “The Federal Reserve has managed to restrain the economy and bring down inflation, and a delay in easing should further cool the economy and keep our initial GDP growth projection intact. The broader trend of lower inflation has not shifted, and the mix of inflation rates should become more favorable, with slower price growth in the service sector and less deflation of prices for goods.”