While the generalized rate of inflation has come all the way down from a peak of 9.1% in 2022 to 2.6% today, very few things are outright less expensive now than they were two years ago. A notable exception is gasoline, whose national average price is approaching $3/gallon, down from a 2022 peak of $5/gallon and headed to the lowest level since early 2021 (see chart below). This is happening at the same time as holiday travel is expected to climb back above pre-pandemic levels. According to motor club AAA, 71.7 million people are expected to travel by car for at least 50 miles this Thanksgiving. That’s 1.3 million more travelers than last year and the most since before the pandemic. All these travelers are about to find out that filling up the tank doesn’t cost as much as it used to, which might encourage them to increase their spending in other categories.
This has the potential to supercharge a holiday spending season that is already off to a great start. Last Friday, the U.S. Census Bureau reported that retail sales for the month of October rose 0.4%, while the growth rate for the month of September was revised higher from 0.4% to 0.8%. For context, a monthly growth rate of 0.4% equates to an annualized growth rate of nearly 5%, which would be the top of the range for the last 10 years, excluding the pandemic years. A similar message is expected to come next week from the Bureau of Economic Analysis, which will release personal spending statistics that place more emphasis on spending on services, a larger share of overall consumer spending. Meanwhile, consumer sentiment is improving, with the Conference Board Consumer Confidence index recently rising to the highest level since January of this year, and the “Expectations” subcomponent rising to the highest level since January 2022.
Despite anecdotal evidence of consumers turning savvier, this has the potential to be a blowout holiday shopping season. Which might just be what the stock market needs to end what has already been a great year on a jolly note.
Source: AAA, Bloomberg, as of 11/18/2024
Sauro Locatelli CFA, FRM®, SCR®
Director of Quantitative Research
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