NRF chief economist: data strong, policy uncertainty clouds 2025 outlook

Strong economic performance seen in 2024 is expected to carry over and influence growth this year, but there is a wide range of uncertainty as the White House and Congress make decisions that will impact the economy, National Retail Federation (NRF) chief economist Jack Kleinhenz said.

“While the U.S. economy has entered 2025 with a fair amount of momentum, the mix of policies being debated on immigration, tariffs, deregulation and taxes blur the economic outlook and its narrative, with many crosscurrents at work,” Kleinhenz said. “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.

“Weak consumer perceptions and uncertainty from the lack of clarity regarding future government policies and regulations can significantly hinder business operations,” he said. “That, in turn, can cause a hesitation in consumer spending and make it difficult for companies to make investment and hiring decisions. We are watching carefully and hoping for the best as much depends on how and when these policies are put in place.”

Kleinhenz’s comments came in the March edition of NRF’s Monthly Economic Review, which said gross domestic product adjusted for inflation grew 2.8% in 2024, with “robust” consumer spending “fueling economic activity and making a consistent contribution to growth.” Overall consumer spending unadjusted for inflation was also up 2.8% year over year in 2024 and retail sales – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – were up 3.6% unadjusted.

Consumers “remained engaged” in January, with core retail sales slipping 0.9% from December after a vigorous holiday season but rising 4.2% year over year, showing that “consumer fundamentals in early 2025 are still strong and are not showing significant indications of stress.”

Consumer spending has been supported by job and wage growth, and while the 143,000 jobs added in January were down from 207,000 in December, the unemployment rate fell to 4% after holding between 4.1% and 4.2% since last June. The data shows signs of worker scarcity rather than slack in the labor market.

Inflation increased more sharply than anticipated in January, with the Consumer Price Index up 3% year over year compared with 2.9% in December, and producer prices up 3.5%. Inflation has been rising since last October, and Kleinhenz said “the critical question is whether the trend will continue. Given the hot January inflation readings for consumer and producer prices alike, the Federal Reserve is unlikely to cut interest rates anytime soon.”

Consumers surveyed for the University of Michigan’s Index of Consumer Sentiment in February said they expect inflation to rise to 4.3% this year, up from 3.3% expected in January. That’s the highest inflation expectation since November 2023 and “likely reflected a concern about tariff-induced prices increases,” Kleinhenz said. The new number came as the index dropped to a low reading of 64.7 in February from 71.7 in January, marking the second monthly decline after five months of small gains.