Apr 22, 2024

Just Do It

Weekly Market Commentary

That ubiquitous phrase from one of America’s most extensive athletic footwear and apparel makers seems to have been adopted by most American shoppers.

The U.S. Census Bureau reported last week that retail sales jumped 0.7% in March, following a strong 0.9% rise in February.

These numbers add to a bundle of recent economic data that is throwing cold water on the idea that the Federal Reserve will proceed with its first rate cut in June.

Why are retail sales important? Consumer spending accounts for almost 70% of total U.S. economic activity. While retail sales exclude services, they include the goods you and I purchase at stores and online. Automobiles are also included.

The graphic below illustrates the trend in retail sales since 2018. The lockdown and ensuing recession sent sales at most retailers down sharply. As you probably recall, some big box retailers, which were considered essential, did quite well.

Note the sharp jump in sales in early 2021. Recall that $1,400 per-person stimulus checks were sent to households via the American Rescue Plan (ARP). A family of four received up to $5,600 if within the ARP’s income limits.

Some saved or paid down debt; others went on a spending spree. The graphic illustrates that spending never returned to or approached pre-stimulus levels.

The stimulus checks did what they were designed to do at the time—stimulate spending.
However, as supply chain constraints were hampering global and U.S. production, strong consumer spending added to bottlenecks and contributed to inflation at the time.

Families haven’t received a stimulus check in quite a while. But businesses are hiring and families are spending. For now, the economy is expanding.

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A Steady-as-She-Goes Fed and a Tame Inflation Report

As expected, the Federal Reserve announced last Wednesday that it held its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. The Fed left the door open to a cut in rates later in the year if inflation makes meaningful progress toward its 2% annual goal or if there is an unexpected weakening in the labor market.

Strong Jobs Report, with a Caveat

The U.S. Bureau of Labor Statistics reported that nonfarm payrolls in May rose 272,000, easily beating expectations of 190,000 per the Wall Street Journal. Over the past three years, nonfarm payrolls have usually topped expectations. That narrative remains intact.

Housing Prices Hit New Record

The price of a home hit a new record, according to the latest data on housing prices. The S&P CoreLogic Case-Shiller 20-City Home Price Index, which measures monthly housing prices in 20 major metropolitan areas, rose 1.6% on a nonseasonally adjusted basis in March.

Drifting Higher

Stocks have been drifting higher for several weeks as investors search for a catalyst that could drive shares in either direction. Interest rates can influence market direction, but there hasn’t been much news recently on the rate front.

How Do Investors Spell Relief?

Investors celebrated an ‘in line with expectations’ CPI that suggested the rate of inflation isn’t accelerating. It’s a small win, but it was enough to send the three major market indexes, the Dow, the Nasdaq, and the S&P 500 to new highs.