Inflationary pressures and deceleration may have triggered an economic slowdown, according to a new report from the National Retail Federation (NRF). The NRF’s latest Monthly Economic Review, shows gross domestic product (GDP) only rose 1.6 percent in the first quarter, by less than half in the second quarter at 3.4 percent and 2.1 percent by the fourth quarter. This is the lowest level of growth since 2.1 percent in the second quarter of last year, according to the NRF. 

“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,” NRF chief economist Jack Kleinhenz said, noting that prices for services are still increasing even as prices for goods level off.

He added substantial progress has been made on inflation since 2022, however, high prices continue to affect spending patterns. He noted the Personal Consumption Expenditure Price Index shows year-over-year inflation has been driven by prices for services, rising to 3.4 percent in the first quarter, compared with 1.8 percent in the previous quarter. 

Despite this trend, Kleinhenz points out that consumers are still willing to spend on goods and services in the face of cost pressures. 

Consumer spending fell in the fourth quarter to 2.5 percent, from 3.3 percent, but grew 2.5 percent year-over-year in the first quarter, with total sales rising 4 percent in March, compared with February 2023. 

“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,” said Kleinhenz.

He noted the positive spending data shows that the U.S. economy is in very good shape, with an “incredible labor market” and “solid” job growth paired with rising wages. 

New data points to continued economic growth within the labor market, with payrolls growing by 175,000 jobs in April, however, unemployment rose to nearly 4 percent, compared with 3.8 percent in March. 

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