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US Policies Yield ‘Anxiety and Confusion,’ NRF

[ July 15, 2025   //   ]

At 2025’s halfway point, it’s still anyone’s guess as to the impact new tariffs and government upheaval will have on the U.S. economy, admitted National Retail Federation Chief Economist Jack Kleinhenz July 8.

“This year began with high expectations for the strength of the U.S. economy,” Kleinhenz said, noting strong 2.8 percent year-over-year growth in gross domestic product in 2024 that was led by consumer spending and helped by business and government spending. “Since then, anxiety and confusion have taken center stage in the economy and financial markets as uncertainty over public policy has intensified. It was difficult to judge how policy changes would impact the economy in early 2025 and it remains so now.”

“Economic fundamentals appear solid at this juncture, but uncertainty is pervasive,” Kleinhenz said. “There are many crosscurrents surrounding tariffs, immigration and deregulation, and everyone is sorting through what the tariff rates are going to be, how they will impact inflation for retail products and, importantly, how long they will be in place.”

Retail is the nation’s largest private-sector employer, contributing $5.3 trillion to annual GDP and supports more than one in four U.S. jobs, or 55 million working, according to NRF, the voice of the retail industry.

“Economic growth is holding up really well” thus far in 2025, “despite uncertainty about the future,” Kleinhenz said In NRF’s July Monthly Economic Review. GDP fell at an annual rate of 0.5 percent in the first quarter, but that was mostly because of a surge in imports driven by tariff announcements. In contrast, private final sales to domestic purchasers – a measure of consumer and business spending – were up 1.9 percent year over year. That was down from 2.9 percent in the previous quarter but showed continued strength in private sector demand and that “the slowdown has been less than feared.”

Year-over-year inflation, as measured by the Personal Consumption Expenditures Price Index, ticked up to 2.3 percent in May from 2.1 percent in April. Unadjusted for inflation, personal income and consumer spending were both up 4.5 percent in May. And core retail sales as defined by NRF – based on Census Bureau data but excluding automobile dealers, gasoline stations and restaurants – were up 3.9 percent year over year both in May and for the first five months of the year.

The labor market is performing better than expected, with employers adding 147,000 jobs in June, just above the monthly average of 146,000 over the past year, and the unemployment rate was largely steady at 4.1 percent. Job openings rebounded to 7.8 million in June, “indicating continued demand for workers” and exceeding the 7 million people unemployed.

Tariffs have yet to be clearly seen in prices. “However, if the large increases in tariffs announced earlier this year take effect and are sustained, they will infiltrate consumer prices, causing a downshift in spending that is likely to spill over into the labor market later in the year with higher unemployment,” Kleinhenz said.

Kleinhenz said the Federal Reserve is “quite unlikely” to cut interest rates in July but could be on track to do so this fall. In the meantime, Fed officials are closely watching the “inflation psychology” of consumers – how their expectations about future inflation influence their current spending and savings decisions and whether they are influenced by short-term price increases.

Uncertainty is difficult to quantify, but an Economic Policy Uncertainty Index developed by economists at Stanford and Northwestern has fallen by half since April, when it hit its highest level since the pandemic.

Approval of Trump’s tax cut and spending bill “could greatly alter the economic outlook” depending on how businesses and consumers react, Kleinhenz said. Nonetheless, adoption of the bill – which provides business incentives, permanent tax cuts for individuals and measures to induce more workforce participation – “meaningfully reduces fiscal policy uncertainty.”

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