July 11, 2024 — According to comments made by National Retail Federation (NRF) chief economist Jack Kleinhenz in the latest issue of NRF’s Monthly Economic Review, the nation is in a “critical moment” of uncertainty as inflation continues to ease and the Federal Reserve considers when to lower interest rate.
“Much like 2017,” Kleinhenz says, referring to when economists waited to see if fast economic growth accompanied by low unemployment would increase inflation, “the economy is going strong, and the labor market is still relatively tight. But this time we’re waiting for inflation to come down, and we’re also waiting for the Federal Reserve to decide on when to lower interest rates.”
The Fed faces a delicate balance: using high interest rates to reduce inflation while avoiding keeping rates too high for too long, which could slow the economy into a recession.
The critical moment lingers “as consumers, businesses, investors, and others wait to learn how they will need to adjust their plans for future economic conditions,” says Kleinhenz. “Fortunately, the risks for monetary policy look balanced at the moment.”
According to the NRF, year-over-year gross domestic product growth fell from 3.4% in the fourth quarter of 2023 to 1.4% in the first quarter of this year—the lowest since spring 2022. A key factor was slower consumer activity resulting from high interest rates aimed at controlling inflation without causing a recession.
The Personal Consumption Expenditures Price Index shows year-over-year inflation shows dropped from 3.4% in the first quarter to 2.6% in May. Most inflation was in the price of services, which rose 3.9% in May, while goods prices decreased by 0.1%.
In May, disposable personal income increased by 3.7% year over year, personal consumption rose by 5.1%, and the savings rate climbed to 3.9%, its highest level in four months. The labor market also showed resilience in May with an additional 272,000 jobs following a 165,000-job increase in April. Average monthly job gains through May were 248,000, slightly below the 2023 average of 251,000.