What to know today

  • PPI and retail sales data are out at 8:30 a.m. ET. 
  • Will America ban TikTok?
  • It’s a consumption-based economy.
markets

What Do Today’s Data Say?

Recent releases suggest a “just about right” base case.

A couple of economic reports could cause some commotion this morning. We’ll see Producer Price Index and retail sales data for February at 8:30 a.m. ET.

Everyone wants to know what the Federal Reserve is going to do, and they want to know right now.

In the grip of this tension, stocks were mixed in mild action on Wednesday, with the S&P 500 and the Nasdaq Composite closing lower, the Dow Jones Industrial Average and the Russell 2000 closing higher.

Stocks were up 16 out of the last 19 weeks heading into this one, and we’ve now gone 266 straight trading sessions without a 2 percent or greater decline for the S&P, the longest such streak since 2018.

There’s a lot of fundamental support underneath that action, with earnings growth still solid. Investors, traders, and speculators are all still bouncy about the next Fed rate cut, and AI is no doubt attracting new market participants.

And, of course, Bitcoin $BTC hit $73,000 on Wednesday, and gold resumed its upward march.

a chart of average hourly earnings growth as a percentage

Looking forward to 8:30, “strong” numbers will support arguments against a June rate cut. Hot PPI would suggest persistent inflation. Robust retail sales would also be a sign of a healthy American consumer.

“Soft” numbers will support arguments for a rate cut. Cool PPI would be considered disinflationary. Slower retail sales would also signal, like the mini two-tenths-of-a-percent surge in the February unemployment rate, that the economy is slowing.

Tuesday’s price action in the aftermath of the Bureau of Labor Statistics’ release of February Consumer Price Index data might be instructive: a big move one direction right on the news, an even bigger move the other direction upon a little further reflection.

Analysts expect February month-over-month headline PPI of 0.3 percent, in line with 0.3 percent in January. Core PPI will be 0.2 percent versus 0.5 percent in January.

Headline year-over-year PPI will be 1.1 percent, down from 0.9 percent in January.

Analysts expect the Commerce Department to report that retail sales rose 0.7 percent in February following a 0.8 percent decline in January. The month-to-month numbers can be noisy, owing to factors such as bad weather. That’s what held January’s number down.

The Fed’s favored inflation gauge, the Personal Consumption Expenditures Price Index, incorporates data from both the CPI and the PPI. The PCE index won’t be updated until the week after the March 20 Federal Open Market Committee decision.

It’s worth reiterating that the long-term trend probably won’t change today. We’re still talking about strong consumer balance sheets supported by real wage growth in a labor market that remains tight.

Are the structural supports for that trend shifting? Probably, that’s what happens in dynamic economies.

It’s unlikely the time for their collapse is now.

deep dive

It’s the USA vs. TikTok

This battle will not soon be won.

The US House of Representatives passed legislation to ban TikTok.

It took little more than a week for a bipartisan block of American legislators to come together around a bill to block a video sharing app with infectious content.

Reached for comment, this newsletter’s author’s older daughter said, “I think they have bigger fish to fry! But I will be sad! How else will I pass my time?????”

My younger daughter, on a beach in the Dominican Republic with her friends enjoying spring break, noted that “a lot of us are thinking about how we have a lot of information from TikTok that American media is not talking about.”

She acknowledged the misinformation element but emphasized the utility of the platform for a generation of people who don’t use traditional news sources.

They’re just two of an estimated 170 million Americans susceptible to what an overwhelming majority of the lower chamber of the US federal legislature considers a national security threat.

an illustration with the tiktok logo and a stop sign over it next to the us congress building

The bill would prohibit US app stores from offering TikTok unless its China-based owner ByteDance sells it within 180 days.

Senate Majority Leader Chuck Schumer has so far declined to endorse the bill. Sen. Mark Warner and Sen. Marco Rubio, the chair and the ranking member of the Senate Intelligence Committee, released a joint statement expressing support for the bill.

“We were encouraged by today’s strong bipartisan vote in the House of Representatives, and look forward to working together to get this bill passed through the Senate and signed into law,” Warner, a Democrat, and Rubio, a Republican, wrote in their statement.

President Joe Biden has said he will sign the bill if it reaches his desk.

Donald Trump recently endorsed the app on his social media site.

deep dive |
March 14, 2024

It’s the USA vs. TikTok

Consumer Discretionary

The US Growth Engine Is Healthy

A resilient and optimistic American consumer is a good thing.

People watch retail sales because it’s a window on consumer behavior. And consumer behavior makes the US economy go.

Consumer spending accounts for approximately 70 percent of the US economy. And it’s continued to drive growth despite high inflation.

Because retail sales are a measure of economic health, it’s worth taking a deeper look when companies like Kohl’s $KSS and Macy’s $M and Nordstrom $JWN warn about soft revenue trends.

Is it a sign of weakness or a shift in behavior? And is there any meaning to the behavior shift?

KSS missed top- and bottom-line forecasts for 2023 results and reported a significant decline in same-store sales for the fourth quarter. Management joined peers at M and JWN in warning of a challenging 2024.

Sales for all three have been declining for multiple quarters and have yet to recover to pre-pandemic levels. Shoppers are going to places like TJ Maxx $TJX and other discount retailers.

The good news, as this chart from Sonu Varghese on the Carson Group indicates, is that American households are in good shape.

a chart showing american household balances with assets, liabilities and net worth as a percentage of disposable income

And, with concerns about inflation easing, consumer optimism about the US economy hit its highest level in almost two years in February.

A survey by McKinsey & Company found that consumers also felt optimistic given labor market resilience and historically low unemployment.

"Overall, we still see more reasons to be bullish than bearish on the US consumer," Bank of America noted this week. 

BofA said consumption trends have started to slow but the US consumer will remain healthy in 2024.

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