Mar 5, 2024

Waiting… and Waiting for the Other Shoe to Drop

Weekly Market Commentary

What is consumer spending? Loosely defined, consumer spending is the ‘stuff’ we buy. It is the goods and services we purchase. It is groceries, clothes, entertainment, health care, auto repair, insurance, appliances, utilities, wireless service, and much more.

Why is consumer spending important to the economy? Well, spending by consumers accounts for almost 70% of total economic activity in the U.S., according to the U.S. Bureau of Economic Analysis (BEA).

The monthly release of consumer spending is much broader than the monthly retail sales report. Retail sales, as the name suggests, tallies the amount of goods purchased at retailers. You know, the stuff you’d buy at the store or online.

Consumer spending includes goods and services. According to the U.S. BEA, the dollar amount spent on services tops goods. Therefore, it is a comprehensive report.

Unlike monthly retail sales, consumer spending is adjusted for inflation. To clarify, if a business sells ten items for $10 in one month, its sales are $100. If it raises the price next month to $11 and sells ten items, its sales will be $110. However, when we adjust for inflation, sales are unchanged, as we exclude the price hike.

This is a very high-level explanation. The straightforward example helps explain how the data are adjusted for inflation. You see, economists aim to capture changes in volume/quantity.

That said, let’s review what’s been happening over the past couple of years. As the graphic illustrates, spending has been rising.

We occasionally get pullbacks, as in January, but pullbacks have been minor. Spending has been up in eight of the last ten months. A similar pattern existed in 2022.

The widely expected recession in 2023 never materialized, as illustrated above. It’s been four steps forward and a small step back over the last year.

A recession will eventually occur. It’s inevitable. However, the consumer has been resilient in the face of higher prices and interest rates.

Those waiting for the other shoe to drop, well, are still waiting.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.


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.