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WASHINGTON – The robust economic momentum seen in 2024 is expected to continue into 2025, but significant uncertainty surrounding government policies could influence the trajectory of growth, according to National Retail Federation (NRF) Chief Economist Jack Kleinhenz.
“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 in NRF’s March Monthly Economic Review.
Kleinhenz noted that while deregulation and tax cuts could provide a boost to economic activity, policies such as immigration restrictions and tariffs could act as headwinds. “Although recent economic data remains strong, we are concerned about the downside risks,” he added.
Strong Consumer Spending and Labor Market
Economic growth in 2024 was fueled by consumer spending, which rose 2.8% year over year. Core retail sales—excluding automobile dealers, gasoline stations, and restaurants—rose 3.6% unadjusted, demonstrating the sector’s resilience. Consumer spending continued into early 2025, with January’s core retail sales increasing 4.2% year over year despite a 0.9% month-over-month decline following a strong holiday season.
The labor market remained solid, with 143,000 jobs added in January, albeit lower than December’s 207,000 gain. The unemployment rate dropped to 4% after holding between 4.1% and 4.2% since June 2024. These figures indicate worker scarcity rather than a slowdown in employment opportunities, Kleinhenz said.
Inflation and Policy Uncertainty Loom
Inflation remains a concern, with the Consumer Price Index rising 3% year over year in January, up from 2.9% in December. Producer prices saw an even sharper increase at 3.5%. Given the recent uptick, the Federal Reserve is unlikely to cut interest rates soon, Kleinhenz noted.
Consumer sentiment has also weakened, according to the University of Michigan’s Index of Consumer Sentiment, which dropped to 64.7 in February from 71.7 in January, marking a second consecutive month of decline. Inflation expectations rose sharply, with consumers forecasting a 4.3% rise in prices for the year, up from January’s 3.3% estimate. Kleinhenz attributed the increase to concerns over tariff-induced price hikes.
Business and Consumer Confidence in Flux
Uncertainty surrounding government policies is weighing on business confidence. “Weak consumer perceptions and uncertainty from the lack of clarity regarding future government policies and regulations can significantly hinder business operations,” Kleinhenz warned. This uncertainty could lead to hesitation in corporate investments, hiring, and consumer spending.
As policymakers in Washington debate regulatory, trade, and tax policies, the NRF will continue to monitor economic conditions affecting the retail sector. While the strong start to 2025 is promising, the coming months will be shaped by how and when these policies are implemented, Kleinhenz said.
