As we have chronicled, the underlying inflation data is showing persistent signs of weakening
while the headline numbers remained stubbornly high. Conversely, we have shown that while
economic growth remains strong, the growth is ever increasingly attributable to one sector of the
economy – the consumer; or more precisely, consumer spending on services. Recent data releases
suggest that both inflation and spending are finally cooling.

To continue with the soft-landing analogy (cliche?), we are in final approach but we are
captained by a team with a poor history reaching the gate unharmed. So expect the unexpected
and prepare for a bumpy ride (in markets) as investors dissect every piece of incoming data. To wit,
the economic research team at the St. Louis Fed has begun publishing VISA’s credit card spending
index (right). The new series is unlike other spending data, however. Rather than tracking total
spending in dollars, it tracks breadth – the number of users who are spending more than average. If
low-income spenders are strained but the wealthy are spending more, a dollars-based system might not reveal the problem. By counting users activity, we get a better reading of the overall health of the consumer.

The new series standardizes scores. A value of 100 signifies “normal” or “trend” growth in
spending: values above 100 indicate strength while scores below 100 indicate weakness. Through
May, we have experienced 27 consecutive months of below-trend growth. A similar period occurred
in 2014-2015 and recession was avoided. June’s numbers are due mid-month.

One other ‘anecdotal’ piece of data: Crunchtime provides sales and inventory tracking
technology for national restaurant chains. A member of their team shared that their data indicates
consumers are trading down (eg. Texas Roadhouse rather than Mortons) but overall activity
remains high. Anecotal data should be used with caution but the perspective is worth noting.