Economic growth is holding up, but ‘uncertainty is pervasive,’ says NRF’s chief economist

WASHINGTON – Tariffs haven’t yet fully shown up in retail pricing, making it difficult to forecast their total impact on the economy, according to National Retail Federation (NRF) Chief Economist Jack Kleinhenz.

“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,” he added. “Economic fundamentals appear solid at this juncture, but uncertainty is pervasive.”

Kleinhenz’s comments came in the July edition of NRF‘s Monthly Economic Review, which assessed the state of the economy at the mid-point of 2025.

He noted that economic growth “is holding up relatively well” so far this year. GDP fell at an annual rate of 0.5 percent in the first quarter, primarily driven by a boost in imports driven following President Trump’s 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.”

Tariff-laden products are only just being to arrive in the marketplace, he noted.

“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.

He does not expect the Federal Reserve to cut interest rates this month but speculated it could be on track to do so this fall. Kleinhenz also noted that the 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.

With the One Big Beautiful Bill Act spending measure signed into law, there are ”many moving parts” that “could greatly alter the economic outlook” depending on how businesses and consumers react, Kleinhenz said.