Economic growth slowed during the first three months of the year, according to the National Retail Federation, but consumers are still spending more than last year.

“The U.S. economy lost some spring in its step during the first quarter as the pace of growth declined, and the downshift came with an unexpected bout of inflation,” National Retail Federation Chief Economist Jack Kleinhenz said. He noted that prices for services are still increasing even as prices for goods level off.

“But even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses,” Kleinhenz said.

The May issue of the NRF’s Monthly Economic Review said gross domestic product grew only 1.6% in the first quarter, less than half the 3.4% seen in the fourth quarter of 2023 and the lowest level since 2.1% in the second quarter of last year.

“While substantial progress has been made on inflation since its peak in 2022, high prices are sticking around longer than expected,” Kleinhenz said. Nonetheless, “Consumers clearly remain willing to spend on both goods and services despite ongoing cost pressures,” Kleinhenz said. Consumer spending growth fell from 3.3% in the fourth quarter but still grew 2.5% year over year in the first quarter.

The latest Economic Cost Index showed that year-over-year private industry wage growth averaged 4.3% in the first quarter, unchanged from the fourth quarter of 2023. Job openings fell to their lowest level in three years in March, however, signaling that the labor market is loosening and potentially taking pressure off wage growth.

Reuters, in covering the Q1 economic numbers, noted that “Spending is likely to gradually cool this year. Lower-income households have depleted their COVID-19 pandemic savings and are largely relying on debt to fund purchases. Recent data and comments from bank executives indicated that lower-income borrowers were increasingly struggling to keep up with their loan payments.”

In March, McDonald’s CFO Ian Borden noted that the restaurant is seeing lower-income customers pull back on their spending.

The search for better value was also a theme at the NACS State of the Industry Summit in April. In the beer category, for example, sales in the budget subcategory were up 11.8%.