(1/x) Consumer spending has been running significantly above trend. As this growth was driven by govt. transfers and a shutdown in services, it looks non-recurring and prone to mean-revert as the pandemic wanes. But what would that look like? #SPX#consumer
(2/x) Consumer expectations for year-ahead spending growth from the FRBNY’s Survey of Consumer Expectations seem a good prognosticator of realized goods spending growth. The two are highly-anticorrelated.
(3/x) In other words, consumers have been whipsawed by the policy response to Covid, and that helps think about the path ahead for spending. Expectations from the most-conservative households have had more predictive power, although not sure why.
(4/x) The implications for the equity market are evident in that goods spending has been more closely-tied with earnings growth than other drivers of GDP have, and spending growth is already significantly above trend.
(5/x) A simple model using survey data since 2014 (survey launched in 2013) implies a contraction in goods nominal spending of close to 7% over the next year (a bottom 2% reading since 1960). That would bring nominal goods spending to levels seen in Q1/Q2 of 2021.
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