Despite increasing global concerns
Inflation erodes consumers’ purchasing power. But the most recent data shows that consumers are still purchasing discretionary items that they would choose to cut if they were feeling constrained.
There were two economic reports related to this last week—August’s Consumer Price Index report, and the Retail Sales report. Although the market reacted poorly to both, the key takeaway is that the US consumer remains resilient despite high inflation. This was also the case in May when we last wrote about this (No Recession in Discretionary Spending). August’s data continues this trend.
Similarly, in our letter last month, Reading from Primary Sources, we highlighted how Visa and Mastercard each have a real-time look at trillions of dollars worth of spending. Here’s what Visa’s President said just last week:
“Overall, spending has been remarkably stable, both in the United States here and for the most part around the world… We’ve seen especially strong spending in restaurants, travel… entertainment, people are back out, going to concerts, going to theaters, going to see movies. But at the same time, non-affluent spending remained relatively resilient.”
And here’s what Mastercard’s CFO said last Thursday:
“The consumer continues to remain strong. We’re encouraged by what we see there.”
Just because consumer spending is strong now, that doesn’t mean it must continue. In its attempt to control inflation the Fed could over-tighten policy, creating economic weakness. The Fed’s track record isn’t wonderful in this regard. But as they raise interest rates again this week, they’re doing it at a time when consumers are still comfortable making discretionary purchases.
Disclosure: Dock Street Asset Management, Inc. and our clients own Visa (V) and MasterCard (MA). This article is not intended to be used as investment advice.