NRF: U.S. recession unlikely, modest holiday spending growth expected

The National Retail Federation (NRF) expects the U.S. economy to have a soft landing and avoid recession in 2024 and early 2025.  NRF Chief Economist Jack Kleinhenz said the U.S. appears to have dodged a near-term recession as economic growth moderates but continues to grow.

“In the home stretch of 2024, the economy is still growing and inflation is abating as the Federal Reserve prepares to lower interest rates,” Klenhenz said in his monthly briefing on Friday, Sept. 6.

Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”

Stephanie Link, chief investment strategist at Hightower, said Friday the economy is slowing but the consumer is hanging tough. She said while there are fewer new jobs, those who are working are seeing wage gains. Consumer spending, the largest component of the GDP has been revised upward to 2.9% for the second quarter, Kleinhenz reports.

“Spending has moderated this year after accelerating in the second half of 2023 but the American consumer has been resilient,” he added.

He said the Fed has all the metrics it needs to make its first rate cut in September, with the Personal Consumption Expenditures Price Index at 2.5% in July. The index has held steady since June and is just above the target of 2%. Even though the labor market has showed signs of slowing in recent weeks, Kleinhenz said, the unemployment rate at 4.2% is still within the normal range.

“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said.

He said rate cuts are positive news but it will take time for several cuts over the next few months to work through credit channels and the economy as a whole. He does not expect a rate cut to provide an immediate uplift to the economy, but it could stabilize current conditions.

Kleinhenz said lower interest rates are a welcome development and should support consumer spending. For that reason, retail spending around the holiday season is expected to see only modest growth. NRF forecast sales growth between 2.5% and 3.5% for the full year. Through the first seven months of 2024, core retail sales that exclude gasoline, automotive and restaurants, are up 2.4%, according to NRF. The trade group will release a holiday sales forecast in late October.

Salesforce reported 47% of surveyed shoppers intend to buy the same amount as last year, and 40% plan to buy less. In the U.S., Salesforce predicts a 2% year-over-year increase in 2024 holiday sales to $272 billion. E-marketer expects e-commerce sales to save the day for retailers this holiday season with online sales increasing 9.5% to offset the 3.7% sales deficit physical stores are likely to see during November and December.

According to Salsify’s “2024 Holiday Consumer Research” report, 65% of shoppers plan to spend about the same as they did in 2023. Research indicates one in five consumers plan to spend less and 15% will likely spend more.