Last week the Conference Board reported that consumer confidence increased in November after declining for three consecutive months. That was obvious from the data pouring in over a Thanksgiving holiday weekend that included Black Friday and Cyber Monday.
Post-Thanksgiving Buying Binge
Black Friday is the day consumers unzip wallets and purses and open the holiday spending season that retailers hope will turn red ink to black. This year, bargain-hunting shoppers poured $9.8 billion into retailers’ coffers, topping last year’s total by 7.5 per cent. Amazon boosted its Black Friday sales over 2022 by 12 per cent as it headed to a 2023 total of almost six billion packages delivered. It heated up its war with brick-and-mortar retailers by sponsoring a football game that attracted 9.6 million viewers with itchy smartphone fingers.
This was followed on Cyber Monday when office productivity plunged as workers who did show up for work rather than claim they were working from home made
$12.4 billion of purchases via the internet, beating the 2022 total by 9.6 per cent. As on Black Friday, heavy discounting oiled the wheels of commerce. It seems that tales of the death of the consumer are greatly exaggerated, to borrow from Mark Twain’s reaction to premature reports of his demise.
Before the Friday and Monday holiday splurges hit, the National Retail Federation predicted that holiday sales (November 1-December 31) would rise between three and four percent over 2022, less than the 5.4 per cent jump in 2022 and far less than the increases in 2021 (12.7 per cent) and 2020 (9.1 per cent). That would result in between 345,000 and 450,000 seasonal hires.
The NRF might want a mulligan after studying Thanksgiving’s sales totals. And after the news that the US economy grew in the third quarter at the robust rate of 5.2 per cent, while “price increases largely moderated” according to a Fed survey.
Good Times Hove Into View
Goldman Sachs’ chief economist, Jan Hatzius, is predicting 2.1 per cent growth next year, just about the economy’s non-inflationary potential. He puts the chance of a recession over the next 12 months at only 15 per cent, while investors put the probability of a Fed rate cut in May at 52 per cent. JP Morgan’s Treasury client survey finds active investors are more bullish than they have ever been. And the Vix, which measures what investors will pay for protection against swings in share price and is regarded as a “fear index”, fell to its lowest level in four years.
More good news. Many Americans are shielded from the effects of the jump in mortgage rates from 3 to 8 percent. Almost 40 per cent of homeowners have no mortgages on their homes, 90 per cent are paying less than 6 per cent while benefitting from a more-than 30 per cent in the price of their homes since the pandemic hit. And share prices are up about 20 per cent this year. Add it all up and median household wealth has risen 37 per cent, to $192,900, since 2019. Richer, more confident folks, with jobs aplenty available, buy cars: new-vehicle sales in November were up 6.5 per cent from a year ago.
Surveying the economic scene, Fed governor
Christopher Waller, a member of the Fed’s monetary policy committee and until now seeming to favor another increase in the Bank’s benchmark rate, flipped, announcing that he is “increasingly confident that [Fed] policy is currently well positioned to slow the economy and get inflation back to 2 per cent.” Loretta Mester and Raphael Bostic, president of the Cleveland and Atlanta Feds, agreed.
Unless The Clouds Foretell Storms
There are, as always, a few clouds darkening the bright outlook. We might be headed for a government shutdown if a big-spending President and Republicans who believe they can force spending cuts despite their tiny House majority, can’t agree on aid to Israel and Ukraine, some money to close the wide-open border, and general spending.
Strapped Consumers
In the private sector, there are signs that the pre- and post-Thanksgiving spending may be the last splurge of 2023 as consumers spend the last of pandemic savings to reel in stuff at discount prices: most retailers are not over-stocked as they were last year. Plans that let people buy on credit rose 42.5 per cent from last year according to Adobe, which tracked consumer spending over the weekend. The average rate of 30-day delinquencies on credit cards is rising, lower-income consumers have almost hit the limits imposed on their use of the plastic, and the big banks are writing off bad credit loans at a higher rate than in the past. The personal savings rate has fallen to about 4 per cent, half the pre-pandemic level, perhaps a harbinger of spending cuts as we approach Christmas. Students are being required to meet their obligations to repay their debts, or draw on the bank of Mom & Pop (very) Ltd.
Small Businesses And Property Developers In Trouble
Add the troubled state of small businesses, which are hard hit by higher interest rates and labor costs, and disinclined to hire, and the possible ripple effect of a commercial property sector in deep trouble. Work-from-home is shrinking the demand for office space. In Washington, the government uses only about 20 per cent of the space it owns or leases. In other cities close to 23 per cent of offices sit unused, as do the shops that provided the coffee and pizzas that work-from-homers now get from their own fridges, cupboards and DoorDash. With loans and mortgage repayments often exceeding the value of older buildings, developers elect to turn them over to the unhappy lender banks.
Jamie Dimon: The Pessimist Building A $3 Billion HQ
All of which are reasons why many investment advisers are warning their clients of excessive complacency and optimism. Jamie Dimon, CEO of JPMorgan Chase, continues to lead the wary. He says, “This may be the most dangerous time the world has seen in decades…. A lot of things out there are dangerous and inflationary. Interest rates may go up and that might lead to a recession…. I’m cautious about the economy.”
Dimon is the driving force behind the $3 billion, 1,388 foot high, 60-story skyscraper international headquarters in mid-town Manhattan in which he will soon gather a scattered staff of up to 14,000. If that’s how pessimists act, all is well in the American economy.