Consumer Checkup

Consumer Checkup

Inflation remains a major headwind for the economy. Concerns were exacerbated earlier this month when the latest CPI report (for August) came in hotter than expected. This is a problem because before we can enter a disinflationary environment (price increases growing at a slowing rate) we need to first see evidence that the acceleration in inflation has ended, and the latest report dimmed such hopes.

Of course a single datapoint does not make a trend, and there are various other measures of inflation outside of the CPI report that the media tends to focus on, so there is still a good chance that we have indeed already passed peak inflation. At the same time, though, this is why in earlier blog posts we stressed that we wanted to see several months of evidence that inflation was no longer accelerating before sounding the “all clear.” This is especially true since in the last 18 months CPI inflation has surprised to the upside 10 times and to the downside only twice, so a consistent and broader confirmation is required to be more certain that we have indeed passed an inflection point.

A key driver of recent inflation this year has been shelter costs, as rents continue to climb and home affordability has never been worse. In fact, with respect to the latter the median American household would need to spend 44.5% of their income to afford payments on a median-priced home in the U.S., the highest percentage on record with data going back to 2006. The good news is that the housing market has already been under pressure since earlier this summer when the inevitability of rate hikes started to finally kick in, and the latest data on housing starts showed continued strong growth in multi-family construction, which will create supply that helps take pressure off of rents. However, both of these developments will take time to actually filter through and provide some relief to American households.

However, there are also some encouraging developments worth mentioning. For example, commodities prices in general have fallen a lot recently, most notably for consumers being gasoline. Indeed, the average price for Regular gasoline fell by 4 cents last week to $3.65 per gallon. That is the 14th weekly decline in a row and equal to a 27% fall since mid-June when the average price topped $5/gallon. Has the decline at the pump supported discretionary spending elsewhere. In some areas yes, according to Bank of America’s latest credit card spending data which found that there was an uptick in discretionary spending across the three income groups it tracks. The recently released retails report for the month of August, though, was by several measures a disappointment.

Specifically, headline sales rose by 0.3% last month, better than expected, while core retail sales, which exclude the more volatile food and energy components, surprised to the downside. Five of the 13 major retail categories posted declines in August in a sign that the staying power of consumer spending is waning as households have relied more on savings and credit as inflation has eroded income growth. In fact, U.S. wage growth has failed to keep pace with rising prices for 17 consecutive months. Households are still spending, though, albeit at a slowing rate, which is actually something officials at the Federal Reserve want to see because it means the demand component of the equation is normalizing. This will help take pressure off of supply and in turn help quicken the return to a disinflationary environment, exactly what the Fed needs in order to justify taking its foot off the economic brake via rate hikes.

What To Watch Next Week


  • Chicago Fed National Activity Index 8:30 AM ET
  • Dallas Fed Manufacturing Survey 10:30 AM ET
  • 2-Yr Note Auction 1:00 PM ET


  • Charles Evans Speaks 6:15 AM ET
  • Durable Goods Orders 8:30 AM ET
  • Case-Shiller Home Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • New Home Sales 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 5-Yr Note Auction 1:00 PM ET


  • MBA Mortgage Applications 7:00 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Charles Evans Speaks 2:00 PM ET


  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Corporate Profits 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Loretta Mester Speaks 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET


  • Lael Brainard Speaks
  • John Williams Speaks
  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 7-Yr Note Settlement
  • 10-Yr TIPS Settlement
  • 20-Yr Bond Settlement
  • Personal Income and Outlays 8:30 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET

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