Stimulating the economy Consumer spending increased 2.4% in January, which was the first increase in three months and the largest increase since last June. This was largely driven by the $600 stimulus checks and federal unemployment benefit extension from the last stimulus package. The PCE Index, which is the Fed’s preferred measure of inflation, indicates prices have increased 1.5% compared to last year and inflation is slowly creeping toward the Fed’s 2% target. Moral of the story: The average American family earns about $69k annually, so a $600 check is about 10% of their monthly income – the $1.4k stimulus checks and extended unemployment benefits in Biden’s $1.9T stimulus plan (which…

Off to the races The big economic print of the week came in the form of the January retail sales report. Retail sales increased 5.3% for the month, which was 1.2% ahead of expectations. The rise in retail sales following the stimulus package’s $600 checks was quite broad-based across all categories – electronics and applications (+14.7%), furniture and home improvement (+12%), online spending (+11%), and even food and drinks (+6.9%). Despite these monthly gains, spending is still well below pre-COVID levels.  Moral of the story: This was a much stronger start to consumer spending than we had expected. At the same time, new jobless claims for last week came in…

Keeping a weather eye on the horizon Even though consumer inflation is still very low at 1.4% (ideally should be near 2%), it rose at the fastest pace in five months for January. Pretty much all of this was driven by a 7.4% increase in the price of gasoline. Prices for food from grocery stores and restaurants has increased by about 4% since the pandemic and indicates shortages of some types of foods and, importantly, the costs associated with dealing with the pandemic for sellers. Taking out food and energy (which tend to be pretty volatile), core inflation was flat.  Moral of the story: The worry is that inflation will really ramp…

Slow starts   The January jobs report and it was…underwhelming. We only created 49k new jobs in January and the numbers reported for December and November were revised downward by 159k in total. The job gains in January were mainly in the professional services and local government education industries while the hospitality sector remains challenged and lost another 61k jobs after losing 536k jobs in December amid new waves of government-mandated shutdowns.  Moral of the story: This year is off to the slow start we had seen coming, which is why the market didn’t react negatively to this disappointing report. The market also appeared to put a greater chance of…