NRF: Chief economist says 2024 “ended on a high note”

Economic growth withstood inflation, high interest rates, and other challenges in 2024 and should continue to show strength in 2025, said National Retail Federation Chief Economist Jack Kleinhenz.

“The U.S. economy ended 2024 on a high note and the outlook looks promising for 2025,” Kleinhenz said. “Recent performance shows the economy is on solid footing and has been growing at a steady pace and above its historical average. The labor market is healthy, unemployment is low, inflation has fallen almost to the Federal Reserve’s target even though it remains somewhat sticky, and the direction of interest rates remains lower.”

“I don’t want to get ahead of our annual forecast, but there is good reason to expect healthy economic growth in 2025 even though its shape will depend upon a lot of moving parts,” Kleinhenz said. Key factors could include changes to trade, immigration, regulation, tax and spending policies and their impact on economic activity “but the resilience of the U.S. consumer should hopefully remain part of the dominant narrative.”

Kleinhenz’s comments came in the January edition of NRF’s Monthly Economic Review, which said 2024 gross domestic product was on track to grow 2.7% over 2023, based on results for the first three quarters and data from the first two months of the fourth quarter. GDP is expected to grow between 2% and 2.5% in 2025, although “the range of uncertainty is wide and this estimate could change.”

The past year “was marked in large measure by the impressive resiliency of the consumer and a sturdy labor market,” with consumer spending supported by low unemployment and wage gains that outpaced inflation even as employers slowed hiring, Kleinhenz said.

The 1.8 million ongoing claims for unemployment insurance as of the week ending December 21 were only 40,000 higher than a year earlier, and new filings fell from 219,000 that week to 211,000 the following week. Average hourly wages were up 4.4% on an annualized three-month average in November.

Year-over-year inflation as measured by the Personal Consumption Expenditures Price Index followed by the Fed fell to 2.4% year over year as of November. That was close to the Fed’s goal of 2% and substantially less than the 3.9% year-over-year increase in wages measured by the quarterly Employment Cost Index.

Consumer spending on both goods and services grew 5.5% year over year unadjusted for inflation in November and December combined while disposable personal income was up 5.2%, year over year, helping boost consumer purchases. Core retail sales as defined by NRF – excluding automobile dealers, gasoline stations and restaurants – were up 4% year over year on a three-month moving average as of November and up 3.8% for the first 11 months of the year. While December figures won’t be released until next week, spending is on track to meet or exceed NRF’s projection for sound holiday shopping season growth of between 2.5% and 3.5% over 2023.

There was a disconnect between strong consumer spending and weak consumer confidence throughout 2024, with shoppers still concerned about high prices even though most inflation is now in services rather than goods. But optimism is increasing, with the University of Michigan consumer sentiment index rising 3.1% to 74 in December – its fifth consecutive monthly increase and the highest level since last April.

Following a quarter-point reduction in interest rates in December, the Fed is attempting to “thread a needle of lowering rates but at a pace that won’t undo recent progress on inflation,” Kleinhenz said. Consequently, Fed officials have indicated that they are likely to lower rates only half a point in 2025 rather than the previously expected full percentage point.