Aggregate Nominal Spending and the Consumer

From the news:

Retail sales rose at a healthy pace in January, a sign that firming wage gains and solid consumer sentiment could be set to boost overall economic growth in 2017.

“The upshot is that the improvement in consumer confidence since President Donald Trump’s election victory now appears to be feeding through into stronger gains in actual spending.”

Under the “microscope”, you might say the pace of sales growth is “healthy” or getting “stronger”, but that´s just because the “grim” state of aggregate nominal spending is trudging along.

(Note: Core Retail Sales excludes autos and parts)

Bottom Line: Given stable and low trend inflation and stably low aggregate nominal spending growth, why is the Fed so eager to hike rates? We still believe in one rate hike at year-end, and that´s only because it´s becoming “tradition”. If the Fed sticks to its 3x “plan”, the “ship” will tip.


Leave a Reply