The Fed’s Latest Beige Book Sang The Retail Industry’s Praises

The Fed’s Latest Beige Book Sang The Retail Industry’s Praises
Theodora Lee Joseph, CFA

about 1 month ago2 mins

What’s going on here?

The Federal Reserve’s (the Fed) latest beige book revealed that the retail industry is like, totally fetch right now.

What does this mean?

US retail sales were 5.6% higher this December than last, pulled up by shoppers spending big on clothing and online stores – presumably making the most of emergency next-day deliveries over the holidays. That meant retail sales increased more than inflation, an indicator that the economy could be headed toward the ideal “soft landing” outcome, where inflation is tamed without sparking a recession. So even though the manufacturing sector had its weakest year since 2020, the combination of easing inflation, robust spending, and a calmer job market should keep the economy on balance.

US industrial production

Why should I care?

For markets: Americans are doing fine on their own.

The Fed is now more likely to keep interest rates where they are for the fourth time in a row at the next meeting. See, those hardy retail sales show that Americans can still afford to spend money and keep the economy moving, reducing the need for any imminent rate cuts. But with inflation falling faster than predicted, the committee could start penciling this year’s rate cuts – three, as forecast in December – into the diary.

US retail sales

The bigger picture: Confessions Of A Shopaholic, the sequel.

A soft landing would earn the US a pat on the back, it’s true. But once the handshakes are finished, attention will slide toward the government’s massive debt pile. Between October and December, the government is expected to have added just under $510 billion to the existing $31 trillion of national debt. Now, some of that will be sold as treasury bonds, but America’s burgeoning debt pile could put off investors. And while the government spent over $650 billion on just interest last year, creditors could well demand more this year, swiping cash that could otherwise be used to help everyday Americans.

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