Looking Past the Headlines: Shedding Light on Consumer Behavior and the Fed

Last Edited by: LPL Research

Last Updated: December 15, 2023

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Transcript

Jeffrey Roach (00:02):

Investors need to take a good look under the headlines to get a clear snapshot on what's going on in the macro landscape. Here are three graphs to get the conversation going. First, consumers are getting more price conscious. The fact that November department store sales were down over 5% from a year ago, but online retailers were up over 8% showed that consumers shunned brick-and-mortar stores in favor of online retailers. Retail sales were up 4% from last November, indicating consumers felt comfortable enough to give a strong boost to the beginning of the holiday sales period. The consumer is becoming more price conscious though, looking for bargains at online retailers, and I think retailers will have to be creative to keep consumers engaged amid a potential turning point in the macro landscape. Second, the Fed is done hiking rates. Markets are probably correct to assume that the Fed's next move is a cut and probably more than the Fed is admitting, but that depends on a host of items including labor market conditions in the coming months.

Jeffrey Roach (01:13):

The Fed's updated summary of economic projections is pushing back on markets expectations that the Fed will dramatically cut rates next year. However, Fed forecasts rarely, if ever, coordinated with actual policy rates. Historically, dot plot medians tended to overestimate policy rates and sometimes by a wide margin. The most egregious example appears to be in 2015 when the committee expected interest rates in 2017 to be above 3.5%, when in actuality they were closer to just one half of 1% that year. Third, disinflation is giving the Fed some leeway. Inflation is on two very different glide paths as easing rent prices haven't completely showed up yet in the official metrics. Goods prices declined month over month, suppressed by 1.3% decline in apparel, the largest monthly decrease since the onset of the pandemic. The decline in goods prices could be in response to the bargain hunting at the start of the holiday sales season. Well, if you want more insights on global market trends, follow us on social media and take care.

LPL’s Chief Economist Dr. Jeffrey Roach provides three key graphs that shed light on consumer behavior and the Federal Reserve's monetary policy.

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You can find Econ Market Minute on the LPL Research YouTube channel and Apple Podcasts.

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