WASHINGTON — Despite heightened anxiety and growing economic uncertainty, the U.S. economy continues to expand, albeit at a slower pace, according to National Retail Federation Chief Economist Jack Kleinhenz.
In the latest edition of NRF’s Monthly Economic Review, Kleinhenz said tariffs imposed by President Donald Trump have not yet tipped the nation into recession. However, the threat of a downturn looms large in the minds of consumers and businesses alike.
“The possibility of a U.S. recession in the near future has increased due to rising trade tensions and other economic factors, but it hasn’t happened yet,” Kleinhenz said. He pointed to Federal Reserve indexes showing economic growth in 43 states as of April, a far cry from the widespread decline needed to signal recession-like conditions.
Still, Kleinhenz cautioned that the path ahead is unpredictable. “With so much uncertainty surrounding the economy in the past few months, I’m not sure anyone can predict the storm path of tariffs and their likely impact,” Kleinhenz said. “The wide range of uncertainty has introduced a high level of unpredictability and has raised the probability of a significantly slower pace for the U.S. economy. Hiring, unemployment, spending and inflation data continue in the right direction, but at a slower pace. Everyone is worried, and a lot of people have recession on their minds.”
After a strong 2024, which ended with 2.8% GDP growth and declining inflation, the U.S. economy contracted at an annualized rate of 0.3% in the first quarter of 2025. While that marked the end of nearly three years of continuous growth, Kleinhenz emphasized that the data does not yet indicate a traditional recession. Much of the contraction, he explained, stemmed from a spike in imports as businesses raced to get ahead of new tariffs.
Consumer activity remained a bright spot. Personal spending rose 1.8% year-over-year in Q1, with goods spending up 4.1% and services spending up 6.3%. Business and consumer spending overall, measured by private final sales to domestic purchasers, increased by 3.1%.
The labor market also remained resilient. Employers added 177,000 jobs in April, keeping the unemployment rate steady at 4.2%. Disposable personal income was up 4% in March compared to a year earlier.
On inflation, the Fed’s preferred measure, the Personal Consumption Expenditures Price Index, showed a 2.3% year-over-year rise in March. Meanwhile, wage growth slowed slightly, with the Employment Cost Index rising 3.6%, the slowest increase in four years, but still outpacing inflation.
Despite these steady indicators, the outlook remains clouded by trade tensions. The Fed’s Beige Book cited widespread uncertainty about international trade policy in all 12 of its districts.
“Well-established economic theory is very clear that tariffs raise prices for consumers, distort investment and reduce the competitiveness of firms that use non-U.S. parts, materials and other inputs,” Kleinhenz said. “I remain concerned that the sporadic implementation of tariffs announced one day, postponed the next and maybe — or maybe not — finally imposed later is weighing on business investment and hiring, likely leading to a weak labor market that will be harmful. People are on an economic cusp, and when people worry about their jobs, their anxiety often triggers a slowdown in consumer spending.” Kleinhenz said.
The NRF monitors key indicators closely to assess how global trade dynamics and domestic policy developments affect retailers and the broader U.S. economy.
