Economic growth slowed during the first three months of the year, but consumers are still spending more than last year, National Retail Federation (NRF) Chief Economist Jack Kleinhenz said.
“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.