| Retail sales – spending at retail stores and bars and restaurants – rose a surprising 1.3% in October.
Why it matters: That exceeded inflation handily. Prices rose 0.4% in October, so inflation-adjusted retail sales rose a hardy 0.9%.
Be smart: Consumers are still spending even though inflation continues to drive prices higher, stretching budgets.
- They can keep pace with inflation, even though their inflation-adjusted wages are falling by drawing down savings and using their credit cards, which they had paid down during the pandemic.
Looking ahead: How long this unique scenario can continue is hard to gauge.
- Savings are not uniformly distributed, so we don’t know if the people that have them are those that need them to support spending.
- Similarly, we don’t know if the rise in credit is concentrated among those that are the most leveraged.
Bottom line: The situation could reverse quickly, but for now consumers’ surprising resilience is driving “second-hand pessimism,” which is the divergence between how consumers and businesses tell surveys they feel about the economy (bad) and how they’re acting (spending and investing). |
