Aug. 7, 2024 — According to the National Retail Federation (NRF)’s latest Monthly Economic Review, the economy is still growing, but could be slowing enough for the Federal Reserve to potentially lower interest rates later this year.

“The consumer environment has kept the [economy’s] expansion on a positive path toward a ‘soft landing’ despite high interest rates,” says NRF chief economist Jack Kleinhenz. “Meanwhile, inflation has not yet been fully tamed, but we are seeing progress.”

The NRF shares that year-over-year gross domestic product growth doubled to 2.8% in the second quarter from the first quarter, averaging 2.1% for the first half of the year. Inflation, measured by the Personal Consumption Expenditures Price Index, fell to 2.6% year over year from 3.4% in the first quarter. Though above the Fed’s 2% target, inflation was primarily driven by service prices and was near zero for retail goods.

The three-month average for payroll gains slowed to 177,000 jobs in June from 267,000 in March, which the NRF says demonstrates 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 indicates that consumers were willing to spend despite cost pressures during the second quarter, according to Kleinhenz. Specifically, total retail sales were up 2.5% year over year in the second quarter and 2.8% for the first half of the year. Core retail sales—excluding auto dealers, gas stations, and restaurants—rose 3.2% year over year for the first six months, aligning with NRF’s forecast for 2024 core retail sales to grow between 2.5% and 3.5% over 2023.

Despite the economy's strength in early 2024, consumer confidence remains weak, according to Kleinhenz. Sentiment, measured by the University of Michigan’s monthly survey, fell for the fourth consecutive month to 66 in July from 79 in March.

Consumers’ ability to spend has been supported by job and wage gains, with disposable income up 3.6% year over year in the second quarter. A Federal Reserve Bank of New York survey shows consumers expect inflation to 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.