And joining us now to discuss is Jason,
where chief investment officer at Albion Financial Group and
Jason thanks so much for joining us this morning.
Welcome to the show.
As I mentioned,
retail sales data falling mostly flat in
September with seven of 13 categories declining.
What's the retail sales data telling us about the
health of the consumer and consumer spending here?
It's good morning, It's nice to be with you.
Well, I think what it's clearly telling us is that things are slowing the consumer,
slowing, the macro environment is slowing.
You know, this data is not adjusted for inflation.
Um but if you pair it with inflation, you know,
we're running at about 8% as we saw yesterday.
Um you know, we have consumer spending about up about 8% on a nominal basis.
So what that tells us is that on a real basis things are about flat and the volumes,
which is really kind of the indication of how the consumer is doing is not going up.
So slowing consumer slowing macro things are starting to break a bit.
We didn't know retail sales make up about 2/3 of the economy.
So what does this say about consumer sentiment? Are consumers still optimistic?
Are they hopeful in the face of all this inflation that we've seen?
Yeah,
it doesn't tell us anything about consumer
sentiment because spending is downstream from sentiment.
So, but what we do know, is when we look at other measures of sentiment,
things that are more directly tied to how consumers feel consumer mood.
You know,
whether it's University of michigan whether it's
a conference board consumer confidence index.
Um, you know, the consumer has been in a pretty sour mood for the last several Months.
There's been a slight uptick as gasoline prices fell.
I think that's pretty obvious why people really feel prices at the pump,
especially when you get north of $4.
So that with the rollover of commodities that we've seen,
there has been some relief, but inflation is still high,
people are still seeing it pour through their budgets at the
grocery store and the markets down and housing is frozen up.
So people are pretty nervous about what's happening.
the economy and it's showing up in declining sentiment,
which is also pouring through at some level to the spending numbers
you just touched on gas here.
The report did show,
as you mentioned that the value of sales at
gas stations fell about 1.4% reflecting cheaper fuel prices,
but of course we did hear from Opec Plus
plans potentially cut production by about two million barrels a day.
So what should the consumer be watching here?
Well, um, so I think the good news is that if you peel back kind of the Opec Plus cut,
the reality is they just put a cap on production
because they were at around 32 million barrels a day.
They went down to 30 that's $2 million or two million barrel cut.
Um, but they were already under producing, they were doing just south of 30.
So, you know, it's kind of more of a technical thing than a realistic thing.
I think that's part of the reason why the oil market
hasn't responded dramatically to what is a pretty large headline cut.
But I think, you know, what the consumer needs to continue to watch is, you know,
obviously,
or what we should really watch in terms of you indication for the consumers,
the labor market, right?
I mean, at the end of the day, if you're employed, if you have,
you know, gainful wages, you're more likely to continue to spend
than if you are out of work. And unemployment remains, you know,
pretty low. The labor market's tight wages are still going up. They are moderating.
That's good news for jerome Powell and the Fed.
But the labor market remains the bright spot in the economy.
Let's talk about the holiday season because
of course that's just around the corner.
What is your outlook for consumer spending with all of this data
that we've been getting in about the state of the economy here?
Yeah, great question. It's a very important part of the year.
It's where a lot of retailers really make their money if they're going to make money.
Um, you know, I think the good news is that, um, you know,
the holiday season typically brings people out to spend.
It brings people out into the economy.
It, it really produces additional economic activity.
People feel a little bit more uh you know,
they have more latitude in opening up their wallets that said,
I think what we can expect this year is a
more tan down holiday season relative to last year.
I mean, let's think about what was going on last year, we had zero interest rates,
we had no war in the Ukraine, we had inflation that was moving up,
but it wasn't the story to your
um and we had a stock market that was an all time high. So I think those
effects of all reversed and part of the negative wealth effect, i. E.
Asset prices down home prices lower or at
least not going up as much and higher interest
rates is likely to feed through to people just
not quite feeling as generous around the holidays.
So we expect it to be a little bit higher or maybe flat year every year,
but it's not going to see big games.
Alright, Jason,
let's talk about another big story that we're following this morning,
which is of course bank earnings, what's the quality of these results?
And what are they
saying about the health of consumers, the banking sector?
And of course the economy more broadly,
Yeah, Great question.
So, you know, banks are really strong window into the macro economy.
So whether you own banks in your portfolio or not,
it's always important to see what the largest banks on Wall Street and the
largest banks on Main Street are saying
about lending or saying about consumer activity,
etcetera.
You know, and I think this is a really tough environment for banks.
Look, I mean,
at the end of the day we have interest rates
rising and that's supposed to be good for banks,
but it's only good for banks at the yield curve, i.
E.
The difference between short rates and long rates are
expanding and what we've seen is exactly the opposite.
We've seen a flipped yield curve and we now have a very firmly inverted yield curve.
So while banks are making more money on loans,
they're also paying more money on deposit.
So there is a bit of net interest margin they're enjoying,
but it's not nearly what what one would expect.
Meanwhile we have capital markets that are a total mess.
We have bond markets that with, you know, with yields up with rates up.
We're not seeing as much bond activity. Investment banking is down huge.
So there's a lot of volatility and a lot of mixed results here.
We're seeing banks starting to move money back over to the rainy day
fund to try to prepare for what could be um some loan losses,
if we were if we are to see a recession, our views, we will see a recession next year.
So a lot of moving parts in the banks, Jpmorgan, which is the bank we own for clients,
had a really good number earnings beat estimates, revenues, beat estimates,
We saw year over year number that was growth for revenue.
So overall good for Jpmorgan. But a tough environment.
Jason thank you so much for your time and your insight this morning.
That's Jason Ware, chief investment officer at Albion Financial Group.