Abigail F. from Biloxi, MS asks: Seasons Greetings Mitch, I’m curious to hear how the shopping season has gone this year, and whether it’s good or bad news for the market. Are Americans still out spending a bunch or are some cracks starting to show? I figure that these numbers are the most important ones to watch in the final days of the year. Thank you.
Mitch’s Response:
Thanks for writing, Abigail. I hope you’re having a wonderful holiday season.
The data suggest the U.S. consumer has been doing just fine over the past several weeks. In November, consumer spending surprised to the upside, with retail sales rising 0.3% from October. The consensus was that sales would decrease by -0.1%. These figures are not adjusted for inflation, but we know that CPI rose by 0.1% month-over-month in November, which tells us that we’re seeing real spending growth here.1
And, zooming out over the past few years, the consumer has managed to keep up spending even after all the stimulus money from the pandemic faded. As seen in the chart below, the year-over-year change in spending remains solidly positive and running at levels slightly higher than pre-pandemic. Through November, retail sales have gone up 4.1% year-over-year, while CPI rose by 3.1%. Again, real spending growth.
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Personal Consumption Expenditures, year-over-year % change
One interesting point to make as well, when ‘peering under the hood’ of the spending data, is that spending on gas went down pretty significantly in November, due largely to lower gas prices. If you remove auto sales and gas sales from the headline spending number, retail sales rose by 0.6% last month. That’s pretty strong.
All told, Americans are expected to shell out close to $1 trillion this holiday season, which would mark the 15th consecutive year of growth. In fact, there’s only been one year in the past two decades when spending fell year-over-year, and that was during the 2007-2008 Global Financial Crisis.
There is one feature of the data I’d like to call out, however, that is arguably bolstering the numbers this year versus what we may have seen in years past. And that’s the new “Buy Now, Pay Later” option that has arguably expanded credit in the U.S. and is an option being used increasingly by younger households.
According to a Bank of America survey, more than 40% of Gen Z and millennial households will go into debt to get through the holidays, with many opting for the buy now, pay later option. In many cases, these options provide an interest-free option for making a purchase, and a strong labor market supports a household’s ability to make the payments. So, net-net, it’s a positive. We just don’t want to see too much reliance on credit generally speaking, which in a sense could undermine the strength we’re seeing in the data.
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