There are two indicators that show consumers will continue to support economic growth this year, (and hence avoid a recession), while inflation is continuing to decline.
Firstly, Thanksgiving, the biggest shopping holiday, lured in more shoppers than ever. A record number of people showed up in stores or online to spend money over Thanksgiving, but their spending on holiday-related items ticked lower as they looked for more bargains, according to data from the National Retail Federation released Tuesday.
The industry group said that 200.4 million customers shopped between Thanksgiving Day and Cyber Monday. That’s above the record 196.7 million that turned out last year.
“The five-day period between Thanksgiving and Cyber Monday represents some of the busiest shopping days of the year and reflects the continued resilience of consumers and strength of the economy,” said NRF President and CEO Matthew Shay. “Shoppers exceeded our expectations with a robust turnout. Retailers large and small were prepared to deliver safe, convenient, and affordable shopping experiences with the products and services consumers needed, and at great prices.”
Consumer confidence also increased. The Conference Board Consumer Confidence Index® increased in November to 102.0 (1985=100), up from a downwardly revised 99.1 in October. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—ticked down slightly to 138.2 (1985=100), from 138.6. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—rose to 77.8 (1985=100) in November, up from its downwardly revised reading of 72.7 in October.
“Consumer confidence increased in November, following three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “This improvement reflected a recovery in the Expectations Index, while the Present Situation Index was largely unchanged.”
Higher confidence was concentrated primarily among householders aged 55 and up though confidence among householders aged 35-54 declined slightly.
Top this off with a revised estimate of third quarter Real GDP growth that rose to 5.2 percent from its initial estimate of 4.9 percent.
But households spending rose 3.6 percent in the third quarter, down from an original 4 percent, which was a sign of slowing inflation. And Personal Consumption Expenditure (PCE) prices that are part of the GDP growth estimate rose just 2.8 percent, 2.3 percent with food and energy prices excluded.
Business profits, meanwhile, increased for the second quarter in a row. They rose 3.3 percent to mark the largest gain in five quarters, suggesting that higher labor costs are not weighing much on earnings. Government spending was also a strong contributor as spending rose at a 5.5% rate, versus 4.6% initially.
All of this news has stocks and bonds rallying—stocks because business profits have increased, and bonds because interest rates have declined precipitously.
The yield on the 10-year Benchmark Treasury note that sets mortgage rates retreated 4.7 basis points to 4.288% from 4.335% Tuesday afternoon. This will give a huge boost to the housing market in the coming months.
So why shouldn’t we be enjoying the holidays? Just maybe the Fed will stop worrying that it isn’t being taken seriously. Inflation is being tamed without causing a recession!
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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