December 21, 2021

Santa Won’t Be Stopped

By Michael McKeown, CFA, CPA - Chief Investment Officer

Santa Won’t Be Stopped

Betting against the U.S. consumer has always been a losing proposition. But it is the engine behind the U.S. economy and always important to watch in terms of trend and changes.

Spending bounced back faster than ever with the fiscal support given to households and businesses in the last 18 months. This contributed to retail sales increasing above the trend line of the last decade. Consumers purchased significantly more goods than services over the last year than in the past.

Retail Sales Above Trend

The negative consequence of this was higher prices for transporting and warehousing goods. Prices increased at nearly a 15% rate over the previous year.

Transportation & Warehousing Prices for Final Goods

The good news according to Gene Seroka, executive director of the Port of Los Angeles, is that port congestion is coming down. In an interview on Bloomberg’s Odd Lots, Gene stated that idle containers are down 60% from late October. Penalties for staying docked helped to alleviate this stress.

Despite the high income and spending growth, consumers do not feel great.  High inflation is a key contributor to the angst. According to the latest survey by the University of Michigan, general consumer sentiment is below the depths of the March 2020 recession.

Consumer Sentiment: University of Michigan

All of the stories from a few months ago about gifts not making it in time for the holidays turned out to be false. The media narrative moved on to the next story, as it does every four to six weeks to garner our attention.

There is still a record number of shipping containers and trucks waiting to be unloaded at ports around the country. Many durable goods have long backlogs and wait times. It will be important to watch how consumers respond to higher prices as companies look to pass along the increased costs.

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