Market Insights:: The Surprising January Retail Sales Report | Episode 102 | 02-15-2024

In this episode of Markets with Megan, Megan Horneman looks into the surprising retail sales report for January, revealing a significant miss in every category, marking the largest decline since March 2023. She analyzes the details, highlighting declines in autos, motor vehicle sales, and building materials, which could be attributed to weather-related conditions. Megan also expresses concern about the service side of the economy, emphasizing the impact of high credit card balances and rates on consumer spending. Discussing the implications for the economy and the Fed, she predicts potential downgrades to first-quarter GDP estimates. Despite the market's positive reaction, the Fed remains focused on inflation over economic concerns. Stay tuned for more updates on inflation in the coming weeks. For questions or comments, reach out to podcast at  Verdence dot com. Thank you for tuning in.

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Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today, on Thursday, February 15th, with our regular segment of Markets with Megan and we're going to discuss that surprising retail sales report we got this morning. Retail sales missed for January. So this is the amount of spending that we saw for the month. It missed in every category of the retail sales, whether you look at it, including autos and gas or not. Including autos and gas the one core part of the retail sales, which excludes the real volatile items like building materials, gasoline, autos. This was the worst month that we've seen for spending, the biggest decline since March of 2023. Let's just dig into a little bit of the details here. Big decline in autos and motor vehicle sales. Building materials were down substantially. That was probably weather related. Other things gasoline stations you know that because gas prices were down clothing, sporting goods, internet shopping. The one area that was strong was when you look at the eating and drinking. So this is spending in restaurants. This was strong. This was a pretty big increase in the month of January and that's a little worrisome because this is the service side of the economy and this is the side of the economy where Americans are spending the majority of their money right now, and they were also still having that sticky inflation pressures here.

Now what does this mean for the economy and the Fed? First of all, for the economy. The consumer is the biggest driver of GDP. It makes up about 70% of GDP. So we'll probably see some economists downgrade their estimates for the first quarter of this year. Keep in mind the average credit card balance that Americans are carrying is $6,500. That is a crazy number. This is the average monthly credit card balance that we have in this country. That is crazy in amongst itself, but then you put on top of that the fact that the average credit card rate is at a record high, whether it's 25% or 30% somewhere in that range. This is eventually going to cause consumers to slow down spending and we think we're starting to see that with these data that we got here in January From the Federal Reserve.

We don't think this really does anything for them. They're still concerned about that inflation print that they got last week. They're more concerned about inflation than they are about the economy, and they have told us that repeatedly. They've gone as far as telling us they'll sacrifice the economy, they'll sacrifice the consumer, in order to get that inflation target and get it down to 2%. So we don't think it changes anything. They do.

The markets took off on this report because it looks like markets are expecting that the Fed will come in. As we've said, they've always come in with a first sign of weakness. They're not going to do it anymore, but the markets are expecting that. So sometimes bad news is good news for the market. So that's why we're seeing that rally here, not only in bonds but in equities today. We'll get more information about inflation this week and next week, so we'll be back with some more information there to see if it changes the path of the Fed. That's all we have today. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.