Americans plan to spend more on holiday shopping this year than they did last year.
That’s the takeaway from pretty much every consumer survey conducted over the past several weeks. Below are some highlights (emphasis added):
We’ll have to wait to see if consumers come through and actually spend more this year.
If they do, it would be consistent with the years-long narrative of . Just this past Friday, we learned retail sales in October rose to a record $718.9 billion.
All this spending has been supported by and real income growth.
Sure, households earlier in the economic recovery — but they .
This is best reflected by the debt-to-income ratio, which remains at historically low levels even as aggregate debt has been rising.
“Although household balances continue to rise in nominal terms, growth in income has outpaced debt,” Donghoon Lee, Economic Research Advisor at the New York Fed.
It’s a reminder to take headlines like “” and ““ with caution because they you need to avoid . Better headlines read like “ and “.”
And in case you’re wondering: Households have a long way to go before they .
Yes, debt delinquencies have been rising. It’s an . But for now, they can be characterized as .
“Aggregate delinquency rates edged up from the previous quarter, with 3.5% of outstanding debt in some stage of delinquency,“ New York Fed researchers . That’s significantly below Q4 2019 levels.
Also, it’s notable that wage growth has outpaced inflation for 18 months.
“This is how most Americans will ultimately be able to get ahead,” The Washington Post’s Heather Long . “Prices won’t go down, but wages will go up enough to offset the higher prices.”
We’re also on a of net job creation in America. When more people have jobs, more people have money to spend.
With a new political party moving into the White House next year, we can expected an .
But as we’ve learned in recent years, just because sentiment is poor. If they have money, .
There were a few notable data points and macroeconomic developments from last week to consider:
Shopping rises to new record level. increased 0.4% in October to a record $718.9 billion.
Strength was with growth in electronics, cars and parts, restaurants and bars, building materials, and online shopping.
Card spending data is holding up. From JPMorgan: “As of 08 Nov 2024, our Chase Consumer Card spending data (unadjusted) was 0.8% above the same day last year. Based on the Chase Consumer Card data through 08 Nov 2024, our estimate of the US Census November control measure of retail sales m/m is 0.35%.”
Unemployment claims tick lower. declined to 217,000 during the week ending November 9, down from 221,000 the week prior. This metric continues to be at levels historically associated with economic growth.
Inflation remains cool. The (CPI) in October was up 2.6% from a year ago, up from the 2.4% rate in September. This remains near February 2021 lows. Adjusted for food and energy prices, core CPI was up 3.3%, unchanged from the prior month’s level.
On a month-over-month basis, CPI was up 0.2%. Core CPI increased by 0.3%.
If you annualize the in the monthly figures — a reflection of the short-term trend in prices — core CPI climbed 2.6%.
Inflation expectations remain cool. From the New York Fed’s : “Median inflation expectations fell at all three horizons in October. One-year-ahead inflation expectations declined by 0.1 percentage point to 2.9%, three-year-ahead inflation expectations declined by 0.2 percentage point to 2.5%, and five-year-ahead inflation expectations declined by 0.1 percentage point to 2.8%.”
However, the introduction of tariffs as proposed by president-elect Donald Trump would be inflationary. For more, read:
Gas prices tick lower. From : “The national average for a gallon of gas is now less than a dime away from dipping below $3 for the first time since May of 2021. But the possible formation of a new hurricane in the Gulf of Mexico could delay or even temporarily reverse the decline in pump prices. Since last week, the national average dropped two cents to $3.08.”
Mortgage rates tick lower. According to , the average 30-year fixed-rate mortgage declined to 6.78%, down from 6.79% last week. From Freddie Mac: “After a six-week climb, rates have leveled off, but overall affordability continues to be an issue for potential homebuyers. Freddie Mac’s latest research shows that mortgage payments compared to rents on the same homes are elevated relative to most of the last three decades.”
There are in the U.S., of which 86.6 million are and of which are . Of those carrying mortgage debt, almost all have , and most of those mortgages before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
Importantly, the more tangible “hard” components of the index continue to hold up much better than the more sentiment-oriented “soft” components.
Industrial activity ticks lower. in October fell 0.3% from the prior month. Manufacturing output fell 0.5%. From the : “A strike at a major producer of civilian aircraft held down total IP growth by an estimated 0.3 percentage point in September and 0.2 percentage point in October. Hurricane Milton and the lingering effects of Hurricane Helene together reduced October IP growth 0.1 percentage point.“
This is the stuff pros are worried about. According to BofA’s November Global Fund Manager Survey: “On tail risks… 32% of November FMS investors view higher inflation as the #1 biggest ‘tail risk’ (up from 26% in October). Concerns over geopolitical conflict took the 2nd place spot this month at 21% (down from 33% last month).”
Offices remain relatively empty. From : “Peak day office occupancy on Tuesday dropped more than five full points from the prior week to 57% as many workers went to the polls on Election Day. Occupancy also declined on Wednesday compared to the previous week, dropping 3.6 points to 57.8%. Washington, DC saw the largest decrease with its peak occupancy day dropping more than nine points to 50% on Thursday. The average low was on Friday at 32.6%, down six tenths of a point from last week.“
Near-term GDP growth estimates remain positive. The sees real GDP growth climbing at a 2.5% rate in Q4.
Putting it all together
The long-term outlook for the stock market remains favorable, bolstered by . And earnings are the .
Demand for goods and services is , and the economy continues to grow. At the same time, economic growth has from much hotter levels earlier in the cycle. The economy is these days as .
To be clear: The economy remains very healthy, supported by . Job creation . And the Federal Reserve — having — has .
We are in an odd period given that the hard economic data has . Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, is that the hard economic data continues to hold up.
Analysts expect the U.S. stock market could , thanks largely due to . Since the pandemic, companies have adjusted their cost structures aggressively. This has come with and , including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is .
Of course, this does not mean we should get complacent. There will — such as , , , , etc. There are also the dreaded . Any of these risks can flare up and spark short-term volatility in the markets.
There’s also the harsh reality that and are developments that all long-term investors to experience as they build wealth in the markets. .
For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. , and it’s a streak long-term investors can expect to continue.