Insights from Industry Experts
The retail outlook for 2025 is shaped by consumer spending, labor market trends, and inflation dynamics. During the NRF conference, Jack Kleinhenz, Ph.D., Chief Economist of the National Retail Federation, moderated a discussion featuring two distinguished economists: Sarah Wolfe, Senior Economist & Strategist at Morgan Stanley Wealth Management, and Gregory Daco, Chief Economist at EY. Together, they explored key economic drivers, challenges, and opportunities influencing the retail sector.
Consumer Spending: A Resilient Growth Driver
Consumer spending, comprising 70% of GDP, continues to anchor economic growth. Panelists highlighted the robust recovery in consumer activity and its implications for retail:
- Disposable Income Growth: Year-over-year growth in disposable personal income reached 5.2% by late 2024.
- Spending Momentum: Consumption of goods and services rose 5.5%, underscoring strong demand.
- Wealth Effect: U.S. household wealth surged by $50 trillion since 2020, including a $5 trillion gain in Q4 2024 alone. This bolstered consumer confidence and purchasing power.
Labor Market Trends and Inflation
The labor market’s health remains vital to sustaining retail activity. While job growth has moderated, real wage increases, particularly among lower-income groups, are driving retail spending.
- Employment Insights: Average monthly job growth slowed to 190,000 in 2024, compared to 250,000 in 2023.
- Inflation Dynamics: Inflation eased but remains above the Federal Reserve’s 2% target. Goods prices fell by 1% year-over-year, benefiting retail margins, while service costs continued to pressure wallets.
2025’s Policy Wildcards: Trade, Tariffs, and Immigration
Economic uncertainties stemming from policy changes could significantly impact retail dynamics:
- Tariff Implications: While new tariffs may cause short-term inflationary pressures, panelists emphasized their limited long-term impact. Retailers must prepare for potential inventory cost pressures and changes in consumer behavior.
- Immigration Policy: Stricter immigration measures could slow population and labor force growth. Wolfe highlighted that reduced immigration could lower GDP growth by 0.8%, disproportionately affecting industries like retail, agriculture, and construction.
Housing Market and Retail Synergies
Despite high mortgage rates constraining existing home sales, the housing market offers potential upside for retail:
- New Home Sales Growth: Improving new home sales may boost retail categories like furniture, appliances, and home goods.
- Renters’ Spending Shift: With homeownership becoming less attainable, renters are increasingly investing in home furnishings, benefiting related retail segments.
AI and Productivity: Retail’s Next Frontier
Panelists discussed the transformative potential of AI, projecting significant productivity gains in the coming decade:
- AI-Driven Growth: Gregory Daco estimated that AI could add 2–4 years of GDP growth over the next decade.
- Labor Augmentation: While some job displacement is inevitable, AI is expected to enhance workforce productivity, supporting long-term retail efficiency and innovation.
Closing Thoughts: A Promising Yet Complex 2025
The NRF economists forecast U.S. GDP growth of 2–2.5% in 2025. While consumer fundamentals remain strong, retail leaders must navigate policy uncertainties, inflation dynamics, and shifting consumer behaviors. As Jack Kleinhenz, Ph.D. noted, “2025 looks promising, with good reason to expect healthy growth.”
To capitalize on opportunities, retail executives should embrace technology, monitor policy developments, and adapt strategies to evolving economic conditions.
Call to Action: How is your organization preparing for the retail landscape of 2025? Join the conversation with industry leaders on LinkedIn or share your strategies on NRF’s discussion platform today!
