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Investors are eagerly anticipating Wednesday's US retail sales report.
That's because the strength of the US economy rests on the shoulders of consumers, making this among the most important gauges we have. If people are spending money, companies keep employees in their jobs and the cycle goes on.
Consumer spending accounts for about 70% of America's gross domestic product, the broadest measure of the US economy, so a recession is nearly impossible as long as consumer spending is growing.
And so far, American shoppers have continued to shell out cash for purchases, despite stubbornly high (though waning) inflation and interest rates at 23-year highs.
Wednesday's report is expected to be a good one – economists polled by FactSet expect that a strong holiday shopping season boosted consumer spending by 0.4% in December from the month prior. That's on top of a 0.3% increase in November.
But new data from the New York Federal Reserve on Tuesday has soured the mood on Wall Street.
The report showed that Americans have slowed some of their spending and that they expect to pull back a little more. The median increase in monthly household spending slowed to 5.01% on an annual basis in December 2023, that's down from 5.5% in August 2023 and 7.1% in December 2022, according to the latest Survey of Consumer Expectations Household Spending data.
That's the lowest reading since April 2021, according to my colleague Alicia Wallace.
The outlook for consumer spending doesn't look so bright, either. The median expected growth in monthly spending dropped to 3%, the lowest since December 2020.
Survey respondents also said they expected to reduce their spending on essentials like groceries.
A confluence of problems: But just as the retail sector was beginning to normalize – having successfully survived Covid-induced supply chain kinks, shutdowns, persistently elevated inflation and unusually high interest rates – it appears that global instability could once again wreak havoc on shipping and throw the sector for a loop.
Container vessels are now avoiding both the Red Sea and the Suez Canal, as Iranian-backed Houthi fighters attack ships in what they say is retaliation for Israel's war against Hamas. The Suez is the main route for shipments from Asia to Europe and to the east coast of the US, and rerouting is causing delays and driving up transportation costs.
The World Container Index, a composite index of container freight rates on eight major routes to and from the United States, Europe, and Asia, increased by 15% last week, according to Drewry, a maritime research and consulting firm. It's doubled since early December.
Those increased shipping costs could get passed on to the consumer, just as inflation rates have started to fall and the Federal Reserve appears ready to lower interest rates.
Yes, but: Still, Bank of America CEO Brian Moynihan believes the consumer will remain resilient.
"We have people who are making money, who are employed. Unemployment is very low, they are getting paid more," he told CNN's Richard Quest at the World Economic Forum in Davos, Switzerland this week.
"Inflation is still tough on a lot of them, so you can't discount that, but on the other hand the stock market being up, they've got accumulated wealth, they are making a lot more money," he said.
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