Despite uncertainty surrounding new tariffs and evolving government policies, the U.S. economy is showing encouraging signs of resilience and adaptability, according to National Retail Federation Chief Economist Jack Kleinhenz.
“This year began with high expectations for economic growth, and we’ve seen encouraging momentum,” said Kleinhenz, referencing a strong 2.8% year-over-year increase in gross domestic product for 2024 — largely powered by consumer spending, with support from business and government expenditures.
While policy uncertainty has introduced complexity, Kleinhenz remains optimistic. “Economic fundamentals appear solid at this juncture,” he said in NRF’s July Monthly Economic Review. “There are many crosscurrents — from tariffs and immigration to deregulation — but the core strength of consumer demand remains intact.”
Indeed, despite a 0.5% annualized decline in GDP during Q1, driven largely by a surge in imports ahead of tariff changes, underlying indicators suggest steady momentum. Private final sales to domestic purchasers, a key measure of real demand from consumers and businesses, grew 1.9% year over year. While down from the previous quarter’s 2.9%, it exceeded many expectations and reinforced confidence in the market’s durability.
Inflation, though gradually ticking up, remains within a manageable range. The Personal Consumption Expenditures Price Index rose to 2.3% in May, up from 2.1% in April. At the same time, personal income and consumer spending each climbed a healthy 4.5% year over year, unadjusted for inflation. NRF-defined core retail sales — which exclude volatile sectors like autos and gas — were up 3.9% both in May and for the first five months of 2025.
The labor market is also providing stability, with employers adding 147,000 jobs in June, slightly surpassing the 12-month average. The unemployment rate held steady at 4.1%, and job openings rebounded to 7.8 million, outpacing the number of unemployed individuals and suggesting continued demand for talent.
“While we have yet to see the full pricing effects of tariffs, current data shows consumers remain active and businesses continue to hire,” Kleinhenz said. “If tariffs are sustained and begin to impact prices, we may see a pullback in spending later this year, but for now, the economy is navigating the uncertainty with remarkable poise.”
Another sign of improving confidence: the Economic Policy Uncertainty Index — a gauge developed by Stanford and Northwestern economists — has dropped by half since peaking in April, indicating a calmer outlook compared to earlier in the year.
Kleinhenz also pointed to recent federal legislation as a stabilizing factor. The newly enacted One Big Beautiful Bill Act, which includes business incentives, permanent tax cuts, and workforce participation measures, is expected to provide a boost to both confidence and activity. “The bill’s passage meaningfully reduces fiscal policy uncertainty,” he said.
While the Federal Reserve is not expected to cut interest rates in July, a rate reduction later this fall is possible if inflationary pressures continue to ease and the economy stays on course.
“As we pass the midpoint of the year, we’re seeing clear signs that consumers are spending, businesses are hiring, and the economy remains on a stable footing — even as it adapts to a shifting policy landscape,” Kleinhenz concluded.
About NRF
The National Retail Federation passionately advocates for the people, brands, policies and ideas that help retail succeed. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $5.3 trillion to annual GDP and supporting more than one in four U.S. jobs — 55 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies. nrf.com
