Once again, your friendly neighborhood flooring publisher is here to debunk another media-created fallacy that is designed to generate eyeballs and clicks and, potentially, negatively impact your business. This time the fallacy surrounds the state of the economy, specifically consumers’ supposed dire straits.
Sitting in my hotel room in Dalton recently, I was perusing the ITR Economics site in preparation of principal Brian Beaulieu’s presentation next week at the NAFCD conference in Colorado Springs. Lo and behold, look what we uncovered:
“We do not subscribe to the notion that consumers in general are ‘hurting’ right now. Real incomes are rising, and debt service is quite manageable through the September data. Perhaps the better test occurs beginning in October when some student loans need to start being serviced. Looking at just the third-quarter data… the consumer was not buying goods nearly as much as they were buying services such as rent, utility bills, insurance bills, transportation—in other words, a lot of largely non-discretionary spending. All else being equal, that leaves less money available to enjoy on discretionary spending.”
However, the consumer is still spending, inflation be damned. Keep in mind that not all “goods” are created equal. September sales data shows that light vehicle retail sales soared in the third quarter, while hardware stores were weak. (The data includes the effects of inflation upon prices.)
Admittedly, the seasonal rise to date in total retail sales is below each of the last four years, but not by much. Specifically, total retail sales were up 2.9% based on the 3/12 rates of change compared to a 10-year pre-COVID-19 average of 4.3%. Building materials and supplies dealers were down 4.2% in September vs. the 10-year pre- COVID-19 average, which was up 3.7%. Consumers seem to be making fewer home improvements or at least lower-value home improvements. Much of this can probably be attributed to the higher interest rates, which are dissuading people from relocating. And one thing we know is that when people relocate, they tend to immediately spend on home improvements—flooring being one of them.
Of course, things would be better if the Fed would start to lower interest rates. That will probably not happen anytime soon, although strange things do happen in Presidential election years (wink wink). The good news is that the Fed—which held rates steady during its two prior meetings—probably does not need to raise interest rates again to achieve its vaunted inflation goal in 2024.
More good news: Real GDP grew in the third quarter. ITR Economics said they expected growth, but the advanced data point came in 1.3% higher than its forecast average. Personal consumption expenditures were the single-greatest broad category of activity to drive growth.
According to ITR Economics, we do have to worry that the Fed will look at this real GDP result and use it as a reason for pushing the fed funds rate higher in either November or December.
Meanwhile, I have always believed that the stock market is more closely aligned with flooring sales than inflation. An older consumer gets nervous when he or she sees their portfolio decline and is less inclined to spend on big-ticket, discretionary items like flooring. So, what does ITR predict for 2024? Between the U.S. economy entering a small recession, geopolitical conflict around the world or even a possible U.S. government shutdown, there is so much going on that could impact the health of the stock market.
First, one of the first things to consider when planning for next year is ITR Economics’ recession forecast for 2024. While some severe stock market declines are associated with recessions, it is not a smart strategy to sell everything now and try to get back in at the bottom. In doing so, you would be more likely to miss out on the recovery that will come after certain variables—such as the Federal Reserve eventually cutting interest rates—are resolved.
The conflict in the Middle East could have an impact on the stock market. For example, oil supply is already tight around the globe. If this conflict were to grow and other countries were to get involved, oil supply could grow tighter, and prices could increase. The stock market as a whole would likely react negatively to escalation of the conflict.
Finally, a U.S. government shutdown could happen in the near future, but this is far from the first time that we have been in this situation. In the past, the stock market has typically sustained a slight negative impact during the lead-up to a government shutdown and then recovered that loss during the shutdown.
Now turn off your TV and stop watching the news!
