Falling inflation and economic growth is dampening fears of a recession. According to the NRF’s latest Monthly Economic Review, the U.S. economy has seen a marked improvement over the past month, with signs of recession waning as the Federal Reserve prepares to lower interest rates. 

“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” said National Retail Federation chief economist Jack Kleinhenz. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”

In August, the NRF raised the alarm over recession fears when unemployment and an economic slowdown sparked fears that the U.S. economy was headed for recession. New data, according to Kleinhenz, has “calmed fears of a deteriorating U.S. economy.” He added that concerns are now focused on the direction of the labor market and the possibility of a job market slowdown.

In the most recent Monthly Economic Review, data shows that annualized gross domestic product (GDP) growth for the second quarter has been revised upward to 3 percent from the original report of 2.8 percent. Meanwhile, consumer spending, the largest component of GDP, was revised up to 2.9 percent growth for the quarter from 2.3 percent. 

Kleinhenz noted spending has moderated this year after accelerating in the second half of 2023 and said “the American consumer has been resilient.”

Year-over-year growth in the Personal Consumption Expenditures Price Index was at 2.5 percent in July, unchanged from June and only half a percentage point above the Fed’s target of 2 percent.

The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. 

New data shows 114,000 jobs were added in July, which was lower than expected, according to Kleinhenz, and the unemployment rate rose to 4.3 percent from 4.1 percent in June. Despite the increase, he said the unemployment rate is still within the normal range.

“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy, but would stabilize current conditions.”

He said lower rates should benefit households under pressure from loans used to meet daily needs. He noted that lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans and credit cards, encouraging spending and increasing demand for goods and services. 

Kleinhenz said the housing market is particularly poised to benefit from improved economic numbers, while small businesses could lower financing costs on existing loans or take out new loans to invest in equipment and plants or hire more workers.

“While consumers will continue to be savvy about their purchases, these factors are a welcome development and should support their (consumers’) propensity to spend,” Kleinhenz said.