This week’s Chart of the Week, part of our expansive Chartbook project, highlights the resilience of consumer spending in the face of declining inflation. The Chartbook, a collaborative effort of economists and strategists, offers key insights into the complex dynamics influencing the market and economy as they continue their robust trajectory into 2024.
While the year began with some early stumbles, the almost three dozen charts featured in the Chartbook provide a nuanced perspective often overlooked in polarized discussions about markets. Beyond the simplistic narratives of AI hype and rate-cut obsessions, these charts shed light on the multifaceted forces impacting stocks, wages, prices, and more.
Notably, the data points to a cooling inflation, potentially overvalued stocks by historical standards, and a selective performance among stocks. A looming productivity boom is hinted at, potentially heralding a paradigm shift. The highlighted Chart of the Week emphasizes that consumers are still spending, buoyed by a rise in inflation-adjusted take-home pay.
Neil Dutta, head of economic research at Renaissance Macro, challenges the “popular bearish talking point” that suggests the US consumer is on its last legs. Disputing the notion that consumers have exhausted their excess savings, Dutta argues, “The excess saving story is one that has officially outlived its usefulness.” He asserts that ongoing gains in real incomes are sustaining consumption, with real incomes witnessing a 3% annual rise since May.
Friday’s jobs report supports this perspective, revealing impressive wage gains of 0.6% over the prior month in January and 4.5% over the last year. Noteworthy is the juxtaposition of these positive wage trends with a continuing moderation in inflation. The overall sentiment remains optimistic, reflecting in the buoyancy of consumer sentiment, which continues to strengthen.
In summary, the Chart of the Week underscores the endurance of consumer spending amidst a backdrop of declining inflation, debunking bearish narratives and emphasizing the robustness of real incomes.
