An uneasy mix of trade policies, interest rate decisions, and government spending is clouding the U.S. retail outlook, according to National Retail Federation (NRF) Chief Economist Jack Kleinhenz.
The ripple effects of shifting tariffs and policy ambiguity are adding pressure to retailers and consumers alike as 2025 heads into its second half.
Anxiety and confusion take centre stage
Reflecting on early-year trends, Kleinhenz says: “It was difficult to judge how policy changes would impact the economy in early 2025 and it remains so now.”
He highlights that the 2.8 per cent GDP growth in 2024—driven primarily by consumer spending—set high expectations. But since then, “anxiety and confusion have taken centre stage in the economy and financial markets as uncertainty over public policy has intensified.”
Solid fundamentals but persistent uncertainty
Despite this turbulence, economic balance sheets remain robust. In Q1 2025, GDP dipped 0.5 per cent—largely due to a surge in imports ahead of tariff announcements—while private sales rose 1.9 per cent year‑on‑year, suggesting demand held stronger than feared.
Kleinhenz notes: “Economic fundamentals appear solid at this juncture, but uncertainty is pervasive.”
Core retail sales, which exclude autos, petrol and dining out, were up 3.9 per cent year‑on‑year in May and over the first five months—a sign that spending patterns remain resilient.
At the same time, inflation climbed—from 2.1 per cent in April to 2.3 per cent in May—while both personal income and spending rose by 4.5 per cent year‑on‑year.
Potential shifts ahead: tariffs, prices and policy
Kleinhenz warns that 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.”
Meanwhile, the Federal Reserve appears “quite unlikely” to cut rates this month, but could act this autumn, as policymakers monitor the “inflation psychology” of consumers—their expectations and behaviour in anticipation of rising costs.
The recent One Big Beautiful Bill Act is expected to “meaningfully reduce fiscal policy uncertainty” by introducing permanent tax cuts and workforce incentives—yet Kleinhenz stresses that with so many moving parts, outcomes hinge on how businesses and consumers respond.
Looking ahead
Retailers are responding in kind. Amazon extended its Prime Day event to four days amid concerns over tariffs and inflation—offering cashback to attract cautious Gen Z shoppers—and Adobe projects online sales of $23.8 billion over the period, a rise of 28 per cent from 2024 levels.
Meanwhile, Reuters reports ongoing confusion around the timing and scope of tariffs, which is prompting firms to delay investments and reorganise supply chains.
Kleinhenz’s analysis underlines the challenge ahead: even as retail sales, jobs and incomes remain stable, much hinges on whether policy clarity returns.
As he summarised, “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.”
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