Consuming thoughts on the consumer

The Fed’s thoughts 

Meeting minutes from the latest FOMC meeting indicated a more positive outlook of the economy in October than the prior meeting. However, officials voted with an overwhelming majority (8 to 2) to cut rates for the third straight meeting as the committee felt uncertainties associated with trade tensions and geopolitical risks had eased but still remained elevated. Officials also discussed tools to use in the next recession and unanimously opposed pushing rates into negative territory (ICYMI, there are countries in Europe where you literally get paid to take out a mortgage to buy a house because interest rates are **that** negative). 

Moral of the story: There was widespread support to move to the sidelines and take a pause on additional monetary policy easing after this meeting. Fed Chairman Powell had indicated that further policy changes would be dependent if any developments cause a material reassessment of the committee’s outlook, however, the minutes didn’t provide any additional detail on what would qualify as a “material” change. 

The consumer’s thoughts 

November’s consumer sentiment gauge came in slightly better than initially anticipated. Interestingly, however, consumers’ views on the current situation deteriorated while their expectations for the future improved. Separately, there seems to be a divide between consumers – half expect a recession while the other half is seeing nothing but rainbows and butterflies.

Moral of the story: The last few reports have indicated slowing future expectations while views of the current situation remained strong, so the change in sentiment this month is a little concerning. This separation in expectations generally indicates consumers’ belief that current prosperity isn’t going to last. We’ll see how this plays out through the holiday shopping season but so far, all signs pointing to continued strength for the consumer.

Target hit the bullseye 

We saw earnings releases from a few retailers last week, namely Walmart, but this week brought a slew of retailer earnings and I was hoping it would provide some additional clarity on the state of the US consumer. Results were relatively mixed as Target and Lowes published fantastic results while Kohl’s and Home Depot disappointed. 

Moral of the story: The divergence in retailer earnings seems to be company-specific – retailers that are harnessing technology and the internet to drive sales in the store and online are benefitting. In the good times, Target tends to outperform Walmart. In bad times, Walmart tends to outperform Target. This quarter, Walmart’s growth came in at 3.2% while Target reported 4.5% growth. So the read-through for consumers would seem to indicate that spending remains fairly solid.