Economic growth slowed during the first three months of the year, but consumers are reportedly continuing to spend more than in 2023, according to recent comments from National Retail Federation (NRF) Chief Economist Jack Kleinhenz.

“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 continue 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 the NRF’s Monthly Economic Review, which said gross domestic product grew only 1.6 percent in the first quarter, less than one-half of the 3.4 percent in the fourth quarter of 2023 and the lowest level since 2.1 percent in the second quarter of 2023.

“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, mainly driven by service prices, shot up to 3.4 percent during the first quarter. That compared with 1.8 percent in the previous quarter.

Still Kleinhenz said consumers remain willing to spend on goods and services despite ongoing cost pressures.

“Consumer spending growth fell from 3.3 percent in the fourth quarter but still grew 2.5 percent year over year in the first quarter, he reported. “And total retail sales as reported by the U.S. Census Bureau were stronger than expected in March, rising 4 percent year-over-year compared with 2.1 percent in February.”

The spending growth reportedly came amid economic data that “paints a picture that the overall U.S. economy remains in very good shape, primarily driven by an “incredible labor market with “solid job growth and rising wages. 

The three-month average payroll gain reached 276,000 in March, the fastest pace in one year, and the latest Economic Cost Index showed that year-over-year private industry wage growth averaged 4.3 percent in the first quarter, unchanged from the fourth quarter of 2023. 

Job openings fell to their lowest level in three years in March; however, signaling that the labor market is loosening and potentially taking pressure off wage growth.

With the first quarter concluded, employment numbers released late last week pointed to continued economic growth but a softening labor market trend. Payrolls grew by 175,000 jobs in April, and the unemployment rate rose slightly to 3.9 percent, compared with 3.8 percent in March.

While wage gains supported workers’ ability and willingness to spend, higher wages are unwelcome news for Fed officials trying to contain inflation pressure. Citing continued high inflation, the Fed left interest rates unchanged last week, as expected, but a rate reduction that might have come in June is now likely to be delayed.

With the labor market still rebalancing, economic growth still steady, and financial conditions easy, we expect the Fed will likely push out the decision to ease interest rates for some time yet, Kleinhenz said.

To read the NRF’s Monthly Economic Review, go here.