CPI, Consumers, and Cosmo

Episode Summary

Executive Summary: The episode concludes that the U.S. consumer remains fundamentally strong despite a weak December retail sales headline and elevated inflation. The panel argues Omicron temporarily dampened activity, seasonal adjustment distorted retail figures, and excess savings plus healthy balance sheets still support spending. They also highlight a structural shift away from big cities and toward Sun Belt markets, with long-run implications for budgets, transit, and commercial real estate.

Main Topics: December retail sales and seasonal distortion (Priority: 5/5): The guests argue the reported monthly drop in retail sales is misleading because seasonal factors are especially harsh in December and spending was pulled forward into October and November. Inflation and CPI composition (Priority: 5/5): They discuss hot inflation running near peak levels, driven mainly by energy and supply-chain disruptions, while warning that rent inflation may accelerate later due to lags. Consumer balance sheets and excess savings (Priority: 5/5): The conversation emphasizes that households still have substantial cash cushions and room to spend, though savings are being drawn down and credit use is rising. Omicron’s impact on real-time economic activity (Priority: 4/5): Real-time data from mobility, commuting, retail, and claims show Omicron hitting activity in January, especially in colder, denser Northeast and West Coast markets. Geographic reallocation of economic activity (Priority: 4/5): The panel notes ongoing population and spending shifts from big urban cores toward suburbs and Sun Belt cities, with implications for tax bases and business models. Pent-up demand and post-pandemic spending categories (Priority: 3/5): They highlight delayed weddings and travel-related or event-related demand as sources of future spending growth, especially in jewelry and apparel.

Key Arguments: The December retail sales decline is not a clean signal of consumer weakness because holiday spending was front-loaded and seasonal adjustment factors were unusually punitive. Inflation is high, but much of it is concentrated in energy and supply-chain-related goods, so the worst may be behind us as those pressures ease. Rents are a key risk for the CPI later in 2022 because alternative rent data are rising quickly and will feed into official measures with a lag. Households still have a large excess-savings buffer, supporting spending and reducing the near-term threat from inflation. Credit card and overall consumer credit growth are increasing, but debt levels remain below pre-pandemic norms and are not yet alarming. Omicron is suppressing mobility, commuting, and in-person spending, but the effects look temporary rather than a replay of spring 2020. The pandemic is permanently altering where people live, work, and spend, shifting activity away from major cities and toward warmer, faster-growing metros. Consumers are likely to remain resilient through 2022, though higher inflation could eventually erode purchasing power and confidence, especially for lower-income households.

Data Points: CPI inflation YoY: 7.0% - December consumer price inflation was described as very hot, with the peak likely near now. Retail sales MoM SA: -1.9% - December retail sales fell sharply, but the panel stressed seasonal adjustment distortions. Retail sales YoY NSA: 10.0% - Non-seasonally adjusted December retail sales were up strongly versus a year earlier. Control retail sales MoM SA: -3.1% - Ryan’s game statistic for the key control measure feeding into GDP consumption. Control retail sales YoY: 12.9% - Year-over-year control retail sales growth in December. Control retail sales vs pre-pandemic trend: 8.4% above trend - Compared with an extrapolated pre-pandemic path, control sales remained well above normal. Food away from home inflation: 6.0% - Mac’s CPI game statistic, tied to restaurant and food-service price increases. Restaurant prices, limited service: 8.0% YoY - Within food away from home, limited-service meal prices rose quickly. Restaurant prices, full service: 6.6% YoY - Full-service meal prices also increased strongly. Employee sites and schools food prices: -49.3% - A sharp decline due to free lunch programs distorting the aggregate food-away-from-home measure. Revolving consumer credit annualized growth: 23.4% - Chris’s statistic for October to November revolving credit growth, the largest since 1998. Revolving credit monthly gain: $20 billion - Increase in revolving balances over the month. Insured unemployment rate: 1.1% - Reached a record low, signaling a very tight labor market. Back to normal index: 88.6 - Real-time activity indicator for Feb. 29, 2020 = 100, showing Omicron-related backtracking. Excess savings: $2.6 trillion - Estimated household excess saving through November. Excess savings share of GDP: 12-13% of GDP - Illustrates the scale of cash buffers supporting consumption. Reduction in metro spending vs pre-pandemic to peak shift: ~600,000 net outflow - Urban cores lost roughly 600,000 residents to suburbs/exurbs by June 2021 at the peak of migration shift. Pre-pandemic urban outflow: ~300,000 net outflow - Before the pandemic, urban cores were already losing population to suburbs/exurbs. Retail spending growth in hot markets: Tampa, Orlando, Charlotte, Houston, Miami top-ranked - Q4 2021 city rankings showed southern and warmer metros outperforming. Train ridership in New York: ~35% of pre-pandemic levels - Early January ridership slipped from around 50% in the fall as Omicron surged. Bridges and tunnels traffic in New York: ~10% below pre-pandemic - Commuting-related traffic weakened again as infections rose. Q1 2022 GDP forecast before Omicron: just north of 5% annualized - Moody’s prior forecast for Q1 growth before the variant surge. Q1 2022 GDP forecast after Omicron: 2% annualized - Forecast cut due to Omicron’s expected drag on activity. Jewelry sales YoY: 63.8% - Used to illustrate pent-up demand from delayed weddings and celebrations.

Pivotal Quotes: "The consumer is in much better shape than retail sales would otherwise imply." — Ryan Sweet: Explaining why December’s weak retail headline should be discounted. "I don't think the beer is much colder than this." — Mac / Michael McNamara: Describing how strong the consumer balance sheet and spending position appears. "This is a fortified position. They're in a good spot." — Michael McNamara: Summing up household financial resilience despite inflation and Omicron.

Implications: Near-term growth should stay supported by savings, credit, and labor-market strength, but Omicron and inflation could slow momentum in Q1. Longer term, spending, commuting, tax bases, and commercial real estate may keep shifting from major cities to Sun Belt and suburban markets.