Happy start to the summer! As we have been expecting, the debt-ceiling deal is now at the finish line, ready for President Biden’s signature. The potential crisis has been averted and the economy and talking heads will now settle into the debate of what it all means. The “fine print” will still need analyzing, but both sides are walking away disgruntled, which to me says that no one won and it’s a deal that everyone can generally live with. I have spoken with several clients over the week and the consensus is that taxes will be higher in the future. There really doesn’t seem to be any other way of digging out of this debt hole we now sit deeply within. For now, the focus will be shifted at least until the presidential primaries and debates begin. Yes, that’s right, we are only 17 months away from electing or re-electing our next President (Tuesday, November 5th, 2024). The proverbial political machines are only getting warmed up. Let the next round of games begin!
What does this mean now for our economy and stock markets? Great question and one that we are working through. My list today would read:
- Interest rates – Will the Fed pause now or are more hikes in the future?
- The economy and inflation.
- Consumer spending patterns and debt.
No question that there are big issues remaining on the table, but having the debt ceiling behind us can allow a shift to the next issues head on with more clarity. There has been growing concern that with inflation and job readings remaining stronger than anticipated, the Fed will be forced to continue on the higher interest rate path. The Fed is meeting again on June 13th-14th, and the broad consensus had been that a pause to increasing rates was in order. Today, we are not so sure that will be the case. While the data has been showing a slowdown, overall, it may not be enough in their eyes to take the foot off the gas pedal completely. Now we will be waiting to see if it is a pause or another ¼ point increase for good measure. Current odds show a 33% chance of another increase which is up slightly over the past few weeks. Speaking of jobs data, payrolls increased again in May. “Payrolls in the public and private sector increased by 339,000 for the month, better than the 190,000 Dow Jones estimate and marking the 29th straight month of positive job growth”. The unemployment rate now sits at 3.7%, slightly higher than the estimate of 3.5% and slightly above the lowest level since 1969. There is no doubt that the labor market remains resilient in the face of a slowing economy.
The U.S. consumer just doesn’t seem ready to give up (spending) in the face of what we seem to think are uncertain times ahead. According to the BEA (Bureau of Economic Analysts), consumer spending was expected to be strong in 2023. They forecast growth of 3.7% for the year, a healthy increase from last year. We do see evidence of shifting patterns, that much we know given the warnings of retailers like Walmart, Home Depot, and Costco. Discretionary spending remains strong in areas like travel and dining out while other segments like autos, home goods and retail have been weakening. This suggests that consumers may feel more confident about the economy than we believe. With that being said, consumer debt is increasing to levels we saw pre-Covid. This is something we will continue to monitor closely.
The start of summer means good weather and vacations on the horizon. Congrats to all of the graduates out there (our middle son is moving on from high school tomorrow!) who will move on to their next chapters in life. Have a nice weekend!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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