Trend watch
Mid February brings Valentine’s Day weekend and President’s Day, which is increasingly becoming a getaway opportunity to escape cabin fever. To wit, weekly air passenger counts jumped 5.7% in the past week to 15.0 million, which is a five-week high.
Furthermore, this week also marks the start of spring break season, whereby leisure travel typically climbs for the next month. After a brief plateau in late April/early May, travel will continue to ramp higher until reaching the traditional peak in late July. The peak in weekly air passenger was just over 19.3 million, which was an all-time high.
Our take
Again, we published a commentary discussing tariffs. While tariffs are a key topic, there are many other important happenings aside from tariffs.
Most notably, two of the key inflation gauges were released this week. Both showed that inflation appears to be heating up – and that’s ahead of tariffs. There were a variety of causes for the price increases, such as used autos (due to hurricanes), food at home (due to egg prices and avian flu), fuel oil (up 4.1% MoM), diesel fuel (jumped 10.4% MoM), etc. Most seem like a series of one-offs causes; nonetheless, prices were climbing.
Additionally, retail sales for January dropped much more than expected. The biggest downer were auto sales, which slumped 2.8% in January after three very strong months when people replaced vehicles damaged by the hurricanes. Also, bad weather in much of the country hampered sales of sporting goods, which plunged 4.6%.
Weaker consumer data – on top of the tariff and inflation worries – has some investors starting the handwringing about another growth scare.
Yet, as we show on slide 13, consumers continue to spending at restaurant and bars, as sales just hit another fresh all-time high. Nor do they seem to be fazed by food inflation.
Furthermore, most consumers don’t seem to be struggling. The vast majority – over 96% – are current on payments (as a percentage of total balances outstanding) compared to the pre-COVID 10-year average of 93.2%.
Accordingly, we remain rather sanguine about consumers and, in turn, the overall economy. That said, uncertainty for the economy and volatility in markets due to the threat of tariffs has been delayed, but not permanently removed. Moreover, the stickiness of prices and inflation matches what we anticipated in our annual outlook, where we outlined steady growth on shifting ground, which remains intact at present.
Bottom line
Uncertainty regarding the impacts from expected policy changes by the new presidential administration and Congress are a growing near-term headwind for the economy. That is complicated by the razor-thin majorities in Congress and continued political dysfunction on Capitol Hill. That has contributed to the recent bouts of volatility in financial markets, which we expect will continue for the foreseeable future. Yet, the U.S. economy remains resilient, and we believe solid growth will endure. At this point, the Federal Reserve (Fed) has paused further rate cuts to digest incoming data and reassess conditions, which we feel is warranted given the uncertainty.
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