WASHINGTON, DC - While 2023 saw high inflation and high interest rates, consumer spending remained higher than expected in the retail sector. Despite this win last year, the National Retail Federation’s (NRF) Chief Economist Jack Kleinhenz predicts that spending growth is likely to slow down in 2024.

“The 2023 U.S. economy was marked in large measure by the impressive resiliency of the consumer,” Kleinhenz said in the January issue of NRF’s Monthly Economic Review. “A year ago, many commentators were skeptical and calling for a recession, but the recession never came. With each passing month, consumers kept spending despite inflation and higher borrowing costs.”

“Nonetheless, those tailwinds are not necessarily sustainable,” Kleinhenz continued. “Tighter credit conditions along with higher borrowing costs continue to be in place now that we’ve turned the page on the annual calendar, and employment reports confirm that the labor market expansion is slowing.”

As the Monthly Economic Review noted, 2023 spending was supported by a tight labor market, a “wealth effect” from a rise in equity and home prices, and savings built up during the pandemic. Unadjusted for inflation, consumer spending was up 5.2 percent year over year in October and November, boosted by a 7 percent year-year-over increase in disposable personal income, a press release stated. Core retail sales—excluding automobile dealers, gasoline stations, and restaurants—were up 3.7 percent year over year for the first 11 months of the year.

However, challenges in the labor market are still present as job openings fell to 8.79 million in November, the lowest level since March 2021.

“The labor market looks set to cool further this year, which will impact consumer expectations for employment and wage growth, and, in turn, affect spending decisions,” Kleinhenz added. “Spending is elevated relative to current income, and maintaining the recent pace of growth will be increasingly difficult.”

As NRF reports, the outlook for income, business, and job market conditions is slowing because of higher interest rates, ongoing inflation, and political stress. To read the full deep dive, click here.

ANUK will continue to report on the state of the retail sector, so stay tuned.