Consumer Spending Concerns – A Look into Retail Sales
As everyone hopes the Fed’s target of a “soft landing” takes place, the U.S. economy may be heading in a different direction as new data suggest some resistance from the biggest economic mover in today’s age: the consumer. Despite last week’s overall positive sentiment from the GDP report, analysts caught glimpses of some signs that the American consumer, the backbone of the economy, may be slowing down its spending. Within three out of the past four months, retail sales had declined, with spending on services in December reaching lower levels not seen in a year. In 2022, existing home sales and auto sales saw numbers that have not been seen in around 10 years. This comes following unprecedented levels of consumer demand post-pandemic, with the help of government stimuli and low credit levels. Now, with still lofty inflation and higher credit-card interest rates, everyone wonders where the American consumer is headed. Last month, American income set aside for savings reached 3.4%, down from the previous year’s 7.5%.
The Consumer Price Index, although receding, has remained above 5% for 19 consecutive months, a streak that has not been beaten for forty years. Currently, the stated probability of a recession in the next year is at 61%, however, other metrics such as record-low unemployment still create uncertainty. Nevertheless, the American consumer seems to be facing issues that may warrant a change in spending, which comprises 70% of economic activity. Throughout the week, investors should view company earnings and consumer sentiment data to gain a better understanding of how consumers are reacting to their current financial climates.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.