US economic growth slows, signalling potential interest rate cuts: NRF

Key elements of the US economy continue to grow but have slowed sufficiently to indicate that the Federal Reserve may lower interest rates later this year, according to National Retail Federation (NRF) chief economist Jack Kleinhenz. Kleinhenz shared his insights in the August issue of NRF’s Monthly Economic Review.

“The consumer environment has kept the expansion on a positive path toward a ‘soft landing’ despite high interest rates,” said Kleinhenz. “Meanwhile, inflation has not yet been fully tamed, but we are seeing progress.”

Year-over-year (YoY) gross domestic product (GDP) growth rebounded to 2.8 per cent in the second quarter of 2024, doubling the 1.4 per cent growth observed in the first quarter. This results in an average growth rate of 2.1 per cent for the first half of the year. The Personal Consumption Expenditures (PCE) Price Index, which is closely monitored by the Federal Reserve, showed a YoY inflation rate of 2.6 per cent in the second quarter, down from 3.4 per cent in the first quarter. This rate remains above the Fed’s target of 2 per cent. Retail goods prices remained near zero, as per NRF.

Job growth has been inconsistent but has clearly moderated, likely keeping the Federal Reserve on track to begin cutting interest rates later this year. The three-month average for payroll gains slowed to 177,000 jobs in June from 267,000 in March, indicating a cooling but still growing economy. Additionally, hiring decreased from 5.7 million jobs in May to 5.3 million in June, with job openings falling slightly from 8.23 million to 8.18 million in the same period.

Retail sales data from the Census Bureau revealed a resilient US consumer base willing to spend despite ongoing cost pressures during the second quarter. Total retail sales increased by 2.5 per cent YoY in the second quarter and by 2.8 per cent for the first half of the year. Core retail sales, as defined by NRF to exclude automobile dealers, gasoline stations, and restaurants, rose by 3.2 per cent YoY for the first six months. This aligns with NRF’s forecast for 2024 core retail sales growth of 2.5 per cent to 3.5 per cent over 2023.

Despite the economy's strength in the first half of 2024, consumer confidence remains weak. The University of Michigan’s monthly consumer sentiment survey fell for the fourth consecutive month, dropping to 66 in July from a recent high of 79 in March.

Nevertheless, consumers’ ability and willingness to spend has been supported by job and wage gains, with disposable income up 3.6 per cent YoY in the second quarter. A Federal Reserve Bank of New York survey indicates that consumers expect inflation to gradually decrease over the next few years, from 3 per cent a year from now to 2.9 per cent in three years and 2.8 per cent in five years.

The Federal Reserve kept interest rates unchanged this week, but Chairman Jerome Powell hinted that a rate cut ‘could be on the table’ in September.

Fibre2Fashion News Desk (DP)