A Top Chart Explains the Solid Spending

Jeffrey Roach:

Hi. I'm Jeffrey Roach, Chief Economist for LPL Financial, with an update on what's happening in the global markets and a call to action for investors. First, incomes are growing faster than prices. One of the most important charts of this time compares inflation with income growth. Price levels are up 18% since the end of 2019, and that's a real challenge for many people in this country. Especially those who rent have minimal discretionary time or in the lower quartiles of household income. However, the tight labor market has been a boon for skilled workers. Despite the risk in consumer prices, disposable income per capita is up over 26% over the same time period. It's no wonder that demand for vacation travel was so high. Real income growth will continue to support retailers in the very near-term. Second, inflation will likely approach 2% in the coming months. Both headline and core inflation rose 0.16% from a month ago. A bit softer-than-expected, keeping the annual rate of inflation in the upper twos.

Jeffrey Roach:

However, consumers are still dealing with what I call a bifurcated inflation experience. That's because goods prices fell less than 0.1%, but prices for services increased 0.2% month-on-month. Now adjusting for inflation, incomes continue to grow despite the beginning signs of a soft job market. So overall, this is a good report for markets. Annual inflation will likely approach 2% in the coming months but could rebound slightly at the end of the year from base effects. So, investors can reasonably expect the Fed to cut rates throughout the balance of 2024. Third, the so-called soft landing looks more likely. The first half of this year was one of solid growth and decelerating inflation, and that's a great combo. And investors have reaped the benefits. Well, what's driving all of this? Well, households have a lot more cash, thanks to those refinanced mortgages in 2021.

Jeffrey Roach:

What about next year? Alternative measures of the business cycle suggest the economy is not quite as strong as it looks on the surface. But that's okay since there are still plenty of investment opportunities. In some, slower inflation along with stronger spending, build a case for a soft landing. Now, the key for the rest of this year will be the job market. Leading indicators do indicate services employment is starting to cool, but the savings from lower debt servicing will continue to support household balance sheets. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.