The year-over-year comparison set for economic data, especially consumer related data, is going to become more challenging starting in the month of March. This is driven by a combination of weak data during 2020 leading to very high year-over-year growth in 2021 and fiscal stimulus boosting income and spending data. We think that the year-over-year growth rate of economic data will likely decelerate in 2022 against these difficult comparisons and without additional fiscal support.
Real consumer spending declined year-over-year in January and February 2021 before increasing 9.5%, 25.5%, and 15% in March-May 2021. Prior to 2020, a normal year-over-year increase was 2-3.5%.
Headline retail sales increased 29%, 48%, and 24% year-over-year in March-May 2021. A strong year-over-year increase prior to 2020 was 5-6%.
Since much of this spending was taking place during a period of time when mobility restrictions were still in place and events were less frequent, much of the money flowed into goods. This led to an outsized increase in goods spending and production that is unlikely to be repeated.
Much of the increase in consumer spending data was aided by the large increase in fiscal support in March 2021 that came from the last stimulus payment. The month of April 2021 included a pull forward of the child tax credit, and the summer months included enhanced unemployment benefits (the end period depends on the state, the program ended nationally the first week of September).
These stimulus payments led to a sizeable increase in consumer incomes, a growth rate that is unlikely to be repeated in 2022.
A more challenging comparison for consumer related data, mixed with a lack of fiscal support and a move to tighten monetary conditions, should lead to a deceleration in the rate of change for economic growth in 2022. A deceleration in economic growth should lead to lower interest rates, flatter curves, and outperformance by high quality/lower beta assets.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.