Prices are still going up, and consumers are still spending: Morning Brief

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Tuesday, February 14, 2023

Today’s newsletter is by Julie Hyman, anchor and correspondent at Yahoo Finance. Follow Julie on Twitter @juleshyman. Read this and more market news on the go with the Yahoo Finance App.

This morning’s inflation report may show inflation accelerated last month, but economists expect that to be the exception this year.

Even with inflation talk dominating both economists’ group chats and Americans’ dinner tables, consumer spending seems to be holding up surprisingly well.

January credit and debit card spending accelerated in January compared to December, according to new data from the Bank of America Institute. Spending per household rose 5.1% from a year earlier, speeding up from a 2.2% increase in December and showing particular strength in areas like travel and eating out.

The economists at the BofA Institute highlighted four reasons for the bump in spending in January:

• Shoppers were waiting for post-holiday sales

• Minimum-wage increases kicked in for about half of U.S. states

• The 8.7% rise in federal Social Security benefits took effect

• Job growth was strong, with 517,000 positions added

The findings are echoed by Mastercard, whose SpendingPulse survey recorded an 8.8% surge in retail sales ex-autos in January. That includes a 24.2% climb in restaurant receipts.

Consumers’ urge to get out and about is also reflect in a recent William Blair survey, which found that nearly 35% of those polled are spending the same on out-of-home entertainment as before the pandemic. And 30.2% are spending somewhat or a lot more, likely a combination of higher prices and making up for lost time.

These reports could be confirmed by advance retail sales data, due out Wednesday morning. Economists expect that spending ex-autos and gasoline rose by 0.9% in January, rebounding from a slump in December.

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Of course, strong consumer spending is a double-edged sword.

On the one hand, it shows that Americans have enough cash (and credit) to cope with higher prices. The job market is healthy enough – despite high-profile layoffs – to support spending. That William Blair survey found that 83% of respondents said their income is higher or the same compared with a year earlier, versus 79% of respondents in July 2022.

On the other hand, if demand remains high, the Federal Reserve may have to work harder, i.e. raise rates more, to counteract that inflationary pressure.

“The challenge is that when you think about the Fed’s mandate, it’s price stability, which goes hand-in-hand with unemployment,” Michelle Meyer, chief U.S. economist at Mastercard, told Yahoo Finance Live. “Unemployment just hit a 53-year low in the last report, so they do want to take out some of that excess in the labor market, get to a more sustainable, healthy pace for job creation. And they want consumers to be spending – but at a rate that is more consistent with a stable and sound economy.”

Programming note: Ryan Sundby, who covers the outdoor and recreation industries at William Blair and co-authored the consumer spending report, will join Yahoo Finance Live at 9:15 a.m.

What to Watch Today

Economy

• 6:00 a.m. ET: NFIB Small Business Optimism, January (91.0 expected, 89.9 during prior month)

• 8:30 a.m. ET: Consumer Price Index, month-over-month, January (0.5% expected, -0.1% during prior month)

• 8:30 a.m. ET: CPI Excluding Food and Energy, month-over-month, January (0.4% expected, 0.3% during prior month)

• 8:30 a.m. ET: Consumer Price Index, year-over-year, January (6.2% expected, 6.5% during prior month)

• 8:30 a.m. ET: CPI Excluding Food and Energy, year-over-year, January (5.5% expected, 5.7% during prior month)

• 8:30 a.m. ET: Real Average Hourly Earnings, year-over-year, January (-1.7% during prior month, revised to -1.5%)

• 8:30 a.m. ET: Real Average Weekly Earnings, year-over-year, January (-3.1% during prior month, revised to -2.6%)

Earnings

• Airbnb (ABNB), Coca-Cola (KO), Conduent (CNDT), Devon Energy (DVN), GoDaddy (GDDY), Herbalife Nutrition (HLF), Marriott International (MAR), Peabody Energy (BTU), Restaurant Brands (QSR), TransUnion (TRU), TripAdvisor (TRIP), Upstart (UPST), Weber (WEBR)

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