U.S. retail sales are expected to increase less this year than in 2023 as consumers feeling the effects of inflation are judicious about discretionary spending, according to an industry trade group.

The National Retail Federation released its 2024 forecast Wednesday, predicting that retail sales will rise between 2.5% and 3.5% to between $5.23 trillion and $5.28 trillion. The outlook compares with 3.6% annual sales growth of $5.1 trillion in 2023. The NRF said this year's forecast is in line with the 10-year, pre-pandemic average annual sales growth of 3.6%.

Nonstore and online sales, included in the total figure, are expected to increase between 7% and 9% year over year to $1.47 trillion to $1.50 trillion, according to the NRF. That compares with nonstore and online sales of $1.38 trillion in 2023.

The NRF unveiled its forecast during its fourth annual "State of Retail & the Consumer" virtual discussion, where its officials echoed what national chains have been saying on their fourth-quarter earnings calls: Shoppers are being more careful about how they spend their money because of high prices.

Consumers are more focused on nondiscretionary goods, according to the NRF. That has a trickle-down effect. In some cases, retailers are closing stores because of the declining sales they're experiencing. In others, retailers are opening up more brick-and-mortar locations to drive more sales.

"Consumer confidence is ticking up from last year's levels, an encouraging sign for the U.S. economy," Katherine Cullen, NRF vice president of industry and consumer insights, said during the trade organization's presentation.

And consumers did splurge a bit in January and February, for occasions such as the Super Bowl and Valentine's Day, according to Cullen.

"At the same time, shoppers are paying close attention to their bottom line, balancing out their discretionary spending by keeping everyday purchases practical and budget-friendly," she said. "In fact, almost half of consumers say they are prioritizing what they need rather than what they want, a 26% increase over March of 2020."

Inflation is expected to moderate to 2.2% on a year-over-year basis, due in part to the economy cooling down, according to NRF's chief economist, Jack Kleinhenz.

"Over the last year, consumers remained resilient, driving economic growth as they navigated their way through the headwinds of continued but moderating inflation and elevated interest rates," NRF President and CEO Matthew Shay said. "And so far in 2024, we've seen this pattern continue and we're confident that moderate but slow [retail sales] growth will continue through the end of this year."

Consumer balance sheets and debt-servicing levels remain good, Kleinhenz said.

Several surveys found that consumers appear to have a favorable outlook, according to the NRF, "yet, many consumers are feeling a pinch from tighter credit and inflation."

The NRF defines retail sales as both store-based and online purchases in a broad range of categories that include discount stores, department stores, grocers and specialty stores, but excludes purchases at automotive dealers, gasoline stations and restaurants.