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As inflation continues to ease and the Federal Reserve ponders when to lower interest rates, the nation is in a “critical moment” of waiting to see what will happen next, National Retail Federation Chief Economist Jack Kleinhenz said today.
“Today we’re waiting once again,” Kleinhenz said, referring to a point in 2017 when economists were waiting to see if fast economic growth and low unemployment would cause an increase in inflation. “Much like 2017, the economy is going strong, and the labor market is still relatively tight. But this time we’re waiting for inflation to come down – and we’re also waiting for the Federal Reserve to decide on when to lower interest rates.”
As it has over the past two years, the Fed must balance using high interest rates to reduce inflation with the risk that keeping rates too high for too long could slow the economy to the point of recession.
“We’re at a critical moment as consumers, businesses, investors and others wait to learn how they will need to adjust their plans for future economic conditions,” Kleinhenz said. “Fortunately, the risks for monetary policy look balanced at the moment.”
Kleinhenz’s comments came in the July issue of NRF’s Monthly Economic Review, which said year-over-year gross domestic product growth dropped from 3.4% in the fourth quarter of 2023 to 1.4% in the first quarter this year, its lowest point since the spring of 2022. A key contributor to the deceleration was slower consumer activity – a goal of high interest rates intended to tame inflation without causing a recession.
Year-over-year inflation as measured by the Personal Consumption Expenditures Price Index dropped from 3.4% in the first quarter to 2.6% in May, according to the report. Most inflation came in services prices, which were up 3.9% in May while goods prices were down 0.1%.
“The Fed likely welcomed data that showed household income, spending and saving were all healthy in May, demonstrating that the economy is growing at a slower-but-steady pace,” Kleinhenz said. “The U.S. economy looks resilient enough for the Fed to wait and has afforded them time.”
Disposable personal income was up 3.7% year over year in May while personal consumption was up 5.1%, and savings rose to 3.9%, its highest level in four months. Additionally, Kleinhenz noted that employment rebounded strongly with a gain of 272,000 jobs following a 165,000-job increase in April.
The June University of Michigan Consumer Sentiment Survey found concerns about high prices' effect on families’ finances but indicated confidence that inflation will continue moderating.
As an authority on retail industry economics through reports such as its Monthly Economic Review, NRF analyzes conditions affecting retail.
About NRF:
The National Retail Federation advocates for people and policies aiding retail success from its Washington D.C., headquarters. As retail's leading voice contributing $5.3 trillion annually GDP-wise and supporting over one-fourth of U.S jobs (55 million Americans), NRF has represented retailers globally for over a century.
