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What I Care About This Week | 2021 Nov 15

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by Franklin J. Parker, CFA

The Summary

The Details

Consumer spending data posts this week. Investors will be watching this data quite closely to see how consumers are coping with higher prices and the end to pandemic-era stimulus. To date, consumers have largely shrugged off higher prices, choosing to maintain and slightly increase spending. Some of that, however, may be due to increased savings from stimulus checks (and rent breaks, and student loan payment suspensions, etc). It is estimated that most of that savings would be depleted by the end of December, however, so some consumer demand may wane in anticipation of lowered savings levels.

And, of course, the Christmas shopping season is also upon us. There is talk that consumers are planning to front-load their Christmas shopping in anticipation of shortages in gift items. Again, fewer goods to sell means retailers may struggle to grow spending over last year at levels that would otherwise be expected, so this is one way supply shortages (and labor shortages) can curtail economic growth.

These monthly data releases—inflation, consumer spending, and employment levels—are becoming more and more important as a gauge for economic activity. Watching these signals closely will help inform the pace of Fed activity, as well as help to forecast earnings in the coming quarters. Disappointing consumer spending would likely yield disappointing Q4 results for many S&P 500 companies.

Chart of the Week

Fathom consulting pushed out an interesting chart this morning. As it turns out, most countries with a per capita GDP of at least half the US are democracies. The plot below shows how democratic a country is on the x-axis and its per capita GDP relative to the US on the y-axis. China is highlighted in blue. With “the great decoupling” under way, analysts are warning that Chinese growth may not be the bet it used to be. Stacked on top of that is the centralized economic control exerted by the CCP. Without a more liberal economy, the Chinese state-capitalism model may be put to a real test.

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