In the April edition of the NRF’s Monthly Economic Review Kleinhenz admitted "no one can accurately forecast what surprises the next year might hold, but the foundation of the economy is relatively sturdy and still on a sustainable path”.
He underscored the ongoing recovery remains “highly reliant” on consumer spending, expressing confidence that,” barring unforeseen shocks,” economic expansion will persist in 2024, albeit not at a spectacular pace.
The report projected a growth rate of retail sales between 2.5% and 3.5% for 2024, indicating a slowdown from post-pandemic growth but aligning with the pre-pandemic 10-year average of 3.6%.
While overall economic growth is expected to be modest, consumer spending is anticipated to hold up amid a gradual easing of inflation and sustained positive job growth despite rising unemployment.
Adjusted for inflation, GDP is projected to grow 2.3% year over year, a slight decrease from 2023's 2.5%. Notably, consumer spending is forecast to increase by around 2%, a slight dip from the 2.3% growth recorded in the previous year.
“Consumers’ behaviour and spending power are tied to their financial health, and the consumer sector looks good at the moment,” said the NRF economist.
While wage growth is expected to moderate towards 3.5% by year-end, and monthly job creation is projected to decrease by approximately 100,000, disposable personal income surged by 4.1% year over year in February.
Furthermore, gains in household wealth of 8% year over year in the fourth quarter was driven by rising home and stock prices and is anticipated to bolster consumer spending through the "wealth effect" phenomenon, extending into 2024.
Despite consumer concerns over tightening credit and inflationary pressures, the NRF explained that recent reports from the Federal Reserve Bank of New York and the University of Michigan indicate improved consumer access to credit and elevated consumer confidence levels, respectively.
However, NRF remains vigilant, closely monitoring payroll and income data as slower job and wage gains contribute to the tempered growth expectations for GDP and consumer spending.
Moderating wage growth, ongoing supply chain recovery, weaker consumer demand, and higher interest rates have collectively contributed to a meaningful reduction in inflation. Kleinhenz anticipates a gradual decline in inflation rates, with a year-over-year projection of 2.2% by year-end.
Regarding monetary policy, Kleinhenz cited remarks by Federal Reserve chairman Jerome Powell last month, indicating that the economy had made “considerable progress” and that inflation had “eased substantially.”
Kleinhenz suggested the Federal Reserve could maintain rates until June, followed by potential rate cuts in September and December that could bring the total reduction to three-quarters of a percentage point by year-end.
