Displaying items by tag: consumer spending

(New York)

With the Fed coming in less dovish than expected this week, there is suddenly much more anxiety in the market. Without a clear direction on rates, and with lingering worries about the economy, the outlook for stocks and bonds is not clear. And as we all know, markets hate uncertainty. Accordingly, the search for the best recession-proof stocks continues, and we have a new proposal today: fast food stocks. As consumer spending falls in a recession, bargain-providing companies, like fast food, often do well. The sector also provides healthy dividends. Take a look at the usual suspects: McDonalds, Wendy’s, and Chipotle, and some you may not have thought of, like Cracker Barrel and Restaurant Brands International.

FINSUM: The “Dollar menu” suddenly becomes very attractive to the American consumer when times start getting tough. These stocks seem a good bet, especially because they have solid dividends, which should provide some protection in case a downturn doesn’t happen.

(Washington)

If higher inflation could be a headwind to rate cuts by the Fed, then there is new data today that could prove a tailwind. New figures show that retail spending was significantly weaker in August than in past months. The data showed that core retail spending stagnated after several months of strong expansion. The data is crucial because consumer spending, and American consumer health generally, has been a bedrock of the economy.

FINSUM: The American consumer has been keeping the economy afloat despite a lot of negative signs around the margins. This could either be a blip or the start of a worrying trend.

(New York)

New data just released shows the US economy is a bit weaker than everyone expected. Second quarter GDP data has been revised downward, showing that the US expanded at only 2.0% in the quarter instead of the first-reported 2.1%. Government spending, weaker exports, and private inventories weighed on the numbers. However, the very good news in the data is that consumer spending increase was the strongest in 4.5 years.

FINSUM: Consumer spending is at its highest levels since 2014 at the same time as bond yields are at extraordinary lows and everyone is worried about a recession. Either a recession will arrive or there will be some big losses in bond markets.

(New York)

Stop worrying so much about the US economy. That is what Bank of America is saying. The bank’s CEO went on the record yesterday explaining the simple reason that the US will avoid a recession. That reason? US consumer health. Moynihan cited internal statistics from BAML that showed that consumer spending has risen almost 6% in Bank of America accounts in the last 12 months versus the previous 12 months, showing that consumers are healthy. Consumer spending makes up 68% of the US economy. Moynihan was dismissive of the yield curve inversion, saying it is likely just a product of an influx of money because of negative yields elsewhere.

FINSUM: Bank of America is the largest US deposit holder, so it has an unparalleled insight into consumer spending. We think this is quite a positive sign.

(Washington)

President Trump threw out an idea for a tax cut this week, then immediately backtracked by calling it unnecessary. The idea, however, appears sound. Trump proposed a payroll tax cut that would primarily help middle and lower class workers (in addition to a capital gains tax cut via indexing to inflation). That would make a lot of sense right now, as it would increase the spending power of the masses, increasing consumption and inflation, and lowering un-utilized manufacturing capacity.

FINSUM: We really like this idea of a payroll tax cut because it would help reverse some of the adverse affects of the wealth inequality that has built up since the Crisis. The more capital is concentrated in a small pool the less of it gets spent (i.e. a single person can only spend so much), which slows the economy. If you increase the spending power of the majority of Americans a lot more will get spent, boosting the economy.