First Quarter Results Show Economy is Slowing but ‘Remains Resilient’

"Even with signs that the economic expansion is decelerating, the economy remains resilient."

NRF Chief Economist Jack Kleinhenz

WASHINGTON, May 7, 2024 – Economic growth slowed during the first three months of the year, but consumers are still spending more than last year, National Retail Federation Chief Economist Jack Kleinhenz said today.

“The U.S. economy lost some spring in its step during the first quarter as the pace of growth declined, and the downshift came with an unexpected bout of inflation,” Kleinhenz said, noting that prices for services are still increasing even as prices for goods level off. “But even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses.”

Kleinhenz’s comments came in the May issue of NRF’s Monthly Economic Review, which said gross domestic product grew only 1.6% in the first quarter, less than half the 3.4% seen in the fourth quarter of 2023 and the lowest level since 2.1% in the second quarter of last year.

“While substantial progress has been made on inflation since its peak in 2022, high prices are sticking around longer than expected,” Kleinhenz said. The Personal Consumption Expenditures Price Index followed by the Federal Reserve showed that year-over-year inflation – driven largely by prices for services – shot up to 3.4% during the first quarter. That compared with 1.8% in the previous quarter.

Nonetheless, “Consumers clearly remain willing to spend on both goods and services despite ongoing cost pressures,” Kleinhenz said. Consumer spending growth fell from 3.3% in the fourth quarter but still grew 2.5% year over year in the first quarter. And total retail sales as reported by the U.S. Census Bureau were stronger than expected in March, rising 4% year over year compared with 2.1% in February.

The spending growth came amid economic data that “paints a picture that the overall U.S. economy remains in very good shape,” driven largely by an “incredible labor market” with “solid” job growth and rising wages. The three-month average payroll gain reached 276,000 in March, the fastest pace in a year, and the latest Economic Cost Index showed that year-over-year private industry wage growth averaged 4.3% in the first quarter, unchanged from the fourth quarter of 2023. Job openings fell to their lowest level in three years in March, however, signaling that the labor market is loosening and potentially taking pressure off wage growth.

With the first quarter concluded, employment numbers released late last week pointed to continued economic growth but with a softening trend in the labor market. Payrolls grew by 175,000 jobs in April and the unemployment rate rose slightly to 3.9%, which compared with 3.8% in March.

While wage gains have supported workers’ ability and willingness to spend, higher wages are unwelcome news for Fed officials trying to contain inflation pressure. Citing continued high inflation, the Fed left interest rates unchanged last week. That was expected, but a rate reduction that might have come in June is now likely to 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,” Kleinhenz said.

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.

About NRF
The National Retail Federation passionately advocates for the people, brands, policies and ideas that help retail succeed. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $5.3 trillion to annual GDP and supporting more than one in four U.S. jobs — 55 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.