Our great American consumer has ignored months and even years of recession predictions from top economists and Wall Street CEOs. Even in the face of the hottest inflation in 40 years and aggressive interest rate hikes to curb it, consumers managed to keep spending and the economy remained on solid footing. But this week’s one-two punch of bad economic data has some experts waiting for more upside.
Consumers, who have weathered nearly two years of rising prices and higher borrowing costs, are finally starting to show signs of exhaustion after two consecutive years of weak retail sales reports, including a downward revision to sales in January. There are growing concerns that this may be the case. Damien McIntyre, portfolio manager at Federated Hermès, said: “While last month’s rise in retail sales has been blamed on the weather, this month’s weakness suggests that consumers are perhaps not as healthy as expected. “I’m doing it,” he said. luck Comment by email.
At the same time, producer price inflation, which tends to drive consumer price inflation, also exceeded Wall Street expectations for the second consecutive month on Thursday. This could put investors’ dreams of a quick economic boost and rate cuts on hold, especially since Fed officials have made clear they have no intention of cutting rates until inflation is well under control. This is another piece of data. “This report is useless to the Fed, which relies on data,” said Quincy Crosby, chief global strategist at LPL Financial.
The latest retail sales and producer price inflation reports are not, in and of themselves, dire news for the economy—retail sales are not completely collapsing, and producer price inflation is not spiking—but The emerging trends are alarming. If companies continue to raise prices, they will likely pass those costs on to consumers who are already tired of inflation. That could put a brake on consumers’ aggressive spending, which has helped prevent the U.S. economy from recession.
Jab: Producer price increase
The first thing to hit the economy on Thursday was an increase in producer price inflation. The producer price index (PPI), which measures changes in prices paid by domestic sellers, rose 0.6% last month, the Department of Labor’s Bureau of Labor Statistics said Thursday. This compared with economists’ consensus estimate of 0.3%.
Producer prices in February also increased by 1.6% compared to the same month last year. Although this is significantly lower than the 4.7% year-on-year increase in producer prices seen in February 2023, when inflation was still 6%, it is still a worrying trend. Having hovered below 1.1% since October, including just 1% in January, February’s PPI inflation statistics are a step in the wrong direction.
Producer inflation was mainly caused by a 4.4% jump in energy prices in February, which caused an increase in overall commodity prices. While lower goods inflation has been one of the keys to lower overall U.S. inflation over the past year, Citi economist Veronica Clark said the PPI report shows that “disinflation in goods prices has largely ended. “This is evidence that the situation is growing,” he said.
With the end of goods disinflation, the interest rate cuts that many investors had expected this month are now likely to be on hold unless future consumer price inflation reports prove more favorable. “Overall…we’re likely to see continued support for the Fed to remain dormant over the next few meetings,” said Rob Swanke, senior equity strategist at Commonwealth Financial Network.
The Cross: Retail sales slump
After being hit by a rise in the producer price index, the economy suffered a severe right cross as retail sales fell short of expectations.
Retail sales in February rose just 0.6% from the previous month and 1.5% from a year earlier, the Census Bureau said Thursday. This compares with economists’ consensus forecast for sales of 0.8% month-on-month. Data shows consumers are starting to rein in their budgets, even as rising gas prices and car dealer incentives are driving up spending.
“The 1.5% year-over-year increase is negligible and less than half of the headline CPI figure. In other words, retail sales are lagging behind inflation,” said Ted Rothman, senior industry analyst at Bankrate. he told reporters in emailed comments Thursday. “The economy is slow for retailers, with only e-commerce shops and bars and restaurants posting annual growth rates faster than the overall rate of inflation.”
In addition to the lower-than-expected February data, last month’s year-over-year sales were revised downward from -0.8% to -1.1%. This is the fourth consecutive month that producer inflation statistics have been revised downward.
Jeffrey Roach, chief economist at LPL Financial, said: luck Even if the unemployment rate remains low and consumers still have some spending capacity, “consistent downward revisions should indicate that the economy is slowing,” he said in an email.
What should investors looking out for if they fear a knockout punch following the latest one-two stocks? Credit card delinquencies are a concern, with credit card debt reaching record highs this year. But Roach had other ideas. “A useful indicator to watch in the coming months is car sales. If the economy is really slowing down, we would expect car inventories to swell and dealers to offer more incentives,” he said. .
