Higher Frequency Data Point to Slower Growth
Despite our recent downgrade to U.S. GDP we did see risks to the downside and both data and events are confirming persistent concerns about some of those risks. We still think above-trend growth is very likely in 2022 and recession risks remain low, even though they have increased. Nevertheless, we have put our U.S. and global Gross Domestic Product (GDP) forecasts under review during our recent meeting of the Strategic and Tactical Asset Allocation Committee (STAAC).
Weekly Credit Card Spending Stalls
We look to higher frequency data to provide us with a perspective on the economy. Weekly data such as credit card spending and rail traffic help us shape our views on the economic environment.
Much of the hard economic data such as the latest monthly job figures and retail sales were collected before the economic impacts from the Russian invasion and before the subsequent sanctions imposed on Russia; therefore, market and economic watchers must be resourceful for finding helpful insights in economic activity. One such data are weekly snapshots into credit card spending.
Slower weekly credit card spending during March points to slower growth and demonstrates the heavy burden on consumers from rising prices. Consumer spending is roughly 70 percent of GDP in the United States so as the consumer goes, so goes the economy.
As shown in the LPL Chart of the day, spending on many categories are still below pre-pandemic levels. After the rough patch in January when the Omicron variant suppressed consumer activity, the data showed a modest improvement. But instead of keeping the improving trend developed last quarter, weekly consumer activity flat lined and stayed below pre-COVID-19 levels of spending.
“We think spending on restaurants, recreational activity and travel-related accommodations give us a unique look at discretionary spending and right now, the consumer is likely holding back on discretionary spending as persistently high prices put a drag on incomes,” explained LPL Financial Chief Economist Jeffrey Roach.
Rail Traffic Starting to Break Free
Weekly data from the Association of American Railroads showed some improvements in shipping across the country. Intermodal rail traffic improved in recent weeks, as firms such as CSX in the east and Union Pacific in the west saw strong demand for transporting grains, lumber and metallic ores. Carloads of petroleum products are still suppressed from 2019 levels, most likely from an overall downward shift in demand rather than a result of the Russian invasion of Ukraine. Rail traffic is a leading indicator for business investment. In our base case, we still think business investment will provide a boost to 2022 economic growth.
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