May 7, 2024 — According to the May issue of the National Retail Federation (NRF)’s Monthly Economic Review, economic growth slowed during the first three months of 2024, but consumers are still spending more than last year.
NRF chief economist Jack Kleinhenz attributes the downshift to an unexpected bout of inflation, noting that prices for services are still increasing even as prices for goods level off. Despite these signs of decelerated economic expansion, Kleinhenz says the economy remains resilient, citing a solid job market and continued spending by consumers and businesses.
NRF reports gross domestic product grew only 1.6% in the first quarter of 2024 compared to 3.4% seen in the fourth quarter of 2023 and the lowest level since 2.1% in the second quarter of last year.
According to Kleinhenz, high prices are lingering longer than expected even though there has been substantial progress on inflation since its peak in 2022.
The Personal Consumption Expenditures Price Index, which is followed by the Federal Reserve, showed year-over-year inflation (driven largely by prices for services) shot up to 3.4% during the first quarter compared to 1.8% in the previous quarter. Despite these ongoing pressures, Kleinhenz remarks that consumers have shown their willingness to continue to spend on goods and services.
Consumer spending growth fell by 3.3% in the fourth quarter but grew 2.5% year over year in the first quarter, and the U.S. Census Bureau’s calculation of retail sales reported a 4% year-over-year increase in March compared to 2.1% in February.
The three-month average payroll gain reached 276,000 in March—the fastest pace in a year, according to NRF. Additionally, the latest Economic Cost Index showed a year-over-year average of 4.3% in private industry wage growth in the first quarter, unchanged from the fourth quarter of 2023. In April, payrolls grew by 175,000 jobs and the unemployment rate rose to 3.9% from 3.8% in March. Job openings fell to their lowest level in three years in March, indicating that the labor market is loosening and potentially taking pressure off wage growth, NRF suggests.
The Fed left interest rates unchanged last week, citing continued high inflation. “Higher wages are unwelcome news for Fed officials trying to contain inflation pressure,” NRF shares, noting that a possible rate reduction in June will now likely be delayed.
“With the labor market still rebalancing, economic growth still steady, and financial conditions easy, we expect the Fed will likely push out the decision on easing of interest rates for some time yet,” says Kleinhenz.