"US consumer spending fell in May for the first time this year and prior months were revised lower, suggesting an economy on somewhat weaker footing than previously thought amid rapid inflation and Federal Reserve interest-rate hikes." - Bloomberg
As headlines on inflation and supply chain issues persist, our firm is sifting through the data in order that we can deliver concise facts to our clients. We know that the deluge of data is confusing and can spur feelings of being overwhelmed, so let us simplify it a bit.
The US Federal Reserve has stated perpetually that their preferred gauge of inflation is 'personal consumption expenditures'. This data point is published monthly and details how much money US consumers spend on goods. The number can be swayed by two things; 1) consumers choosing to purchase more or less goods/services 2) the prices of those goods/services going up or down. We know that the prices of goods have been going up lately, so if the monthly rate of PCE declines then we can infer that it is due to a consumer lessening the amount of goods they're purchasing. In other words, it is due to a change in consumer behavior rather than price of goods.
Because of the law of supply and demand, when demand goes down prices generally begin to soften. Therefore, we believe that a cautious consumer who is spending less will in fact help moderate inflation. This change in consumer behavior will help the Fed's goal of lowering inflation and theoretically lessen the amount of rate hikes necessary to ensure price stability. The silver lining here may be that any recession occurring within the next 18 months may be shorter than the 2008 financial crisis.
We know that the start to 2022 has been rocky, in fact you should pat yourself on the back for weathering the worst start to a year since 1932, and we encourage you to remain calm. Markets have always rewarded those investors who can remain invested through periods of volatility and turmoil. Please reach out to our office to suggest a one-off touch base meeting time where we can encourage you to keep your vision looking forward and not be lead to capitulation by the noise around you today.
