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WASHINGTON – Key elements of the economy are still growing but appear to have slowed enough to be on track for the Federal Reserve to lower interest rates later this year, National Retail Federation Chief Economist Jack Kleinhenz said today.
“The consumer environment has kept the expansion on a positive path toward a ‘soft landing’ despite high interest rates,” Kleinhenz said. “Meanwhile, inflation has not yet been fully tamed, but we are seeing progress.”
Kleinhenz’s comments came in the August issue of NRF’s Monthly Economic Review, which said year-over-year gross domestic product growth rebounded to 2.8% in the second quarter, doubling the 1.4% seen in the first quarter and working out to 2.1% for the first six months of the year. Inflation as measured by the Personal Consumption Expenditures Price Index followed by the Fed fell to 2.6% year over year from 3.4% in the first quarter. That was still above the Fed’s target of 2%, but inflation was driven mostly by prices for services and was near-zero for retail goods.
In addition, “Job growth has been lumpy but has clearly moderated and is likely to keep the Federal Reserve on course to begin cutting interest rates later this year,” Kleinhenz said. The three-month average for payroll gains slowed to 177,000 jobs in June from 267,000 in March, showing that the economy is growing but cooling. Hiring fell from 5.7 million jobs in May to 5.3 million in June, and job openings fell from 8.23 million to 8.18 million in the same period.
Retail sales data from the Census Bureau “showed a sturdy and adaptable U.S. consumer willing to spend despite cost pressures” during the second quarter, Kleinhenz said. Total retail sales were up 2.5% year over year in the second quarter and 2.8% for the first six months of the year. Core retail sales as defined by NRF – excluding automobile dealers, gasoline stations and restaurants – were up 3.2% year over year for the first six months. That was in line with NRF’s forecast for 2024 core retail sales to grow between 2.5% and 3.5% over 2023.
“While the overall economy continued to display remarkable strength in the first half of 2024, consumer confidence remains weak,” Kleinhenz said. With consumers wary of high prices for services, sentiment measured by the University of Michigan’s monthly survey fell for the fourth month in a row to 66 in July from a recent high of 79 in March.
Nonetheless, consumers’ ability and willingness to spend “has been buoyed by job and wage gains” with disposable income up 3.6% year over year in the second quarter. And a Federal Reserve Bank of New York survey shows consumers think inflation will gradually slow over the next few years, from 3% a year from now to 2.9% in three years and 2.8% in five years.
The Fed left interest rates unchanged this week, but Chairman Jerome Powell said a rate cut “could be on the table” in September.
As the leading authority and voice for the retail industry, NRF analyzes economic conditions affecting the industry through reports such as the Monthly Economic Review.
