The U.S. economy entered 2025 with momentum from strong growth in the previous year, but uncertainty remains as federal policy decisions regarding immigration, tariffs, deregulation, and taxes could influence future conditions, according to comments made by National Retail Federation (NRF) chief economist Jack Kleinhenz in the latest Monthly Economic Review.

“While deregulation and tax cuts could provide positive momentum, immigration restrictions and tariffs could be a drag on the economy and have adverse effects. Although recent economic data remains strong, we are concerned about the downside risks,” says Kleinhenz. “Weak consumer perceptions and uncertainty from the lack of clarity regarding future government policies and regulations can significantly hinder business operations. That, in turn, can cause a hesitation in consumer spending and make it difficult for companies to make investment and hiring decisions.”

Gross domestic product, adjusted for inflation, grew by 2.8% in 2024, with consumer spending playing a key role in economic activity. Retail sales—excluding auto sales, gas stations, and restaurants—rose 3.6% unadjusted year over year. While core retail sales declined 0.9% from December to January following a strong holiday season, they were still 4.2% higher than the previous January.

The U.S. economy added 143,000 jobs in January, down from 207,000 in December. The unemployment rate fell to 4%, which NRF says suggests a tight labor market rather than weakening demand for workers.

Inflation remains a concern, with the Consumer Price Index rising 3% year over year in January, up from 2.9% in December. Producer prices increased 3.5% over the same period. Kleinhenz noted that the unexpected rise in inflation could delay any interest rate cuts by the Federal Reserve.

Consumer sentiment also showed signs of unease. The University of Michigan’s Index of Consumer Sentiment dropped to 64.7 in February from 71.7 in January, reflecting growing concerns about inflation, including the potential impact of tariffs. Inflation expectations among consumers rose from 3.3% in January to 4.3% in February, the highest level since late 2023.