The U.S. economy enters 2025 with solid momentum, but ongoing policy debates in Washington create uncertainty, according to National Retail Federation Chief Economist Jack Kleinhenz. While deregulation and tax cuts could drive growth, concerns over tariffs and immigration policies cloud the economic outlook.
“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.
Consumer spending remains strong
The NRF report highlighted that consumer spending remained a key driver of economic activity in 2024. Inflation-adjusted gross domestic product (GDP) grew by 2.8% last year, with consumer spending increasing by 2.8%. Core retail sales—excluding automobiles, gasoline, and restaurants—rose 3.6% in 2024.
Retail sales slowed slightly in January, dipping 0.9% from December, but still posted a 4.2% year-over-year gain.
Kleinhenz noted that consumer fundamentals remain strong and do not yet show significant signs of stress as part of the economic outlook.
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Labor market and inflation concerns
The U.S. labor market continues to support spending, with 143,000 jobs added in January. While this was down from December’s 207,000, the unemployment rate dropped to 4%, indicating a tight labor market rather than a slowdown.
However, inflation trends raise concerns for the economic outlook. The Consumer Price Index rose 3% year-over-year in January, up from 2.9% in December. Producer prices also increased, reaching 3.5% growth.
Kleinhenz noted that inflation has risen since October, and the Federal Reserve is unlikely to cut interest rates soon.
Policy uncertainty could impact growth
Kleinhenz warned that government policy uncertainty could hinder business investments and consumer confidence. Immigration restrictions and tariffs could affect growth, while deregulation and tax cuts may provide positive momentum.
“Weak consumer perceptions and uncertainty from the lack of clarity regarding future government policies and regulations can significantly hinder business operations,” Kleinhenz said. “That, in turn, can cause hesitation in consumer spending and make it difficult for companies to invest and make hiring decisions.”
The University of Michigan’s Index of Consumer Sentiment dropped to 64.7 in February from 71.7 in January, marking a second consecutive monthly decline.
Consumers surveyed in February expected inflation to rise to 4.3% in 2025, up from 3.3% the previous month, reflecting concerns about potential price increases driven by tariffs.
Economic outlook hinges on policy decisions
Despite strong economic indicators, Kleinhenz emphasized that much depends on how and when policy decisions are made.
Retailers and businesses remain cautious as they navigate an uncertain regulatory environment.
The NRF will monitor the economic outlook as policymakers shape decisions that could influence growth, consumer confidence, and the retail sector in the months ahead.