Spending heavy in a bargain bin economy

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QUICK FIX

The Thanksgiving weekend was a boon to retailers. But even with consumers poised to spend record amounts between Black Friday and Cyber Monday, a quick peek at the dash suggests America’s economic engine is still at risk of losing steam.

“People are very cautious about their finances,” Dec Mullarkey, the managing director of investment strategy and asset allocation at the $273 billion asset management firm SLC Management, told your host. “They’re still willing to spend but they’re being cautious and careful.”

The data seems to suggest otherwise — at least at first glance.

Prior to the weekend, the National Retail Federation’s annual survey projected a whopping 182 million people would shop online or in stores over the holiday weekend. The Wall Street Journal reports that foot traffic climbed compared to last year, and Adobe Analytics found that online spending on Black Friday climbed by more than 7 percent compared to last year, pushing total sales close to $9.8 billion. Today’s sales are poised to make Cyber Monday the year’s biggest shopping day, with spending projected to land at around $12 billion.

But all of this is “predominantly driven by discounts,” Vivek Pandya, the lead analyst at Adobe Digital Insights, told MM on Sunday.

Growth in online retail sales slowed to the low single-digits after reporting blockbuster figures in 2021 and 2022, and “we’ve seen consumers be very strategic in trying to maximize their spending on [holiday sales events], so that they can get the most to stretch their dollar and get the most value,” Pandya added.

What’s more, the use of “buy-now, pay later” options — which enable people to pay down purchases in installments — surged by more than 70 percent over the past week, according to Adobe. That likely means more consumers are facing financial constraints, Pandya said.

Both Pandya and Mullarkey said that shoppers are now more price sensitive — and are more likely to hunt around for a deal — after nearly two years of elevated borrowing costs and persistent inflation. Leaders at retail giants like Target and Walmart have noted in recent earnings calls that shoppers are starting to show strain, particularly as they face headwinds like the resumption of student loan payments and higher credit card bills.

In other words, a strong kickoff to the holiday season might not be a reversal of other recent signs that consumer spending was starting to soften.

We’ll get a clearer sense of where things stand on price growth — as well as personal income and savings — when the Commerce Department reports personal consumption expenditures for October on Thursday.

“I don’t see it falling off a cliff,” Mullarkey said. “As long as people hold on to their jobs and feel good about that, they will continue to spend. But … the levels are normalizing on their demand.”

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Driving the Week

Monday … New home sales for October will be released at 10 a.m. …

Tuesday … Fed Gov. Christopher Waller will deliver a speech on the economic outlook at 10 a.m. at the American Enterprise Institute … Chicago Fed President Austan Goolsbee will deliver opening remarks at the Midwest Agriculture Conference at 10 a.m. … Fed Gov. Michelle Bowman will deliver a speech on monetary policy and the economy at 10:45 a.m. at the Utah Bankers Association and Salt Lake Chamber Breakfast … Fed Vice Chair for Supervision Michael Barr is scheduled to give a pair of speeches on the Community Reinvestment Act at 1:05 p.m. and 3:30 p.m.

Wednesday … The first revision of third-quarter GDP is out at 8:30 a.m. … CFPB Director Rohit Chopra testifies at House Financial Services at 10 a.m. … Cleveland Fed President Loretta Mester will deliver a keynote on banking sector turmoil at 1:45 p.m. … The SEC’s Small Business Advisory Committee meets at 10 a.m. … The Fed’s Beige Book is out at 2 p.m. … The Supreme Court will hear arguments on Securities and Exchange Commission v. Jarkesy.

Thursday … PCE, personal income and spending for October are out at 8:30 a.m. … New York Fed President John Williams will deliver a keynote at a Bretton Woods Committee and New York Fed event at 9:05 a.m. … Chopra testifies at Senate Banking at 10:15 a.m. … The SEC has a closed meeting at 2:15 p.m.

Friday … Barr will deliver remarks on bank supervision and regulation at the Fifth European Central Bank Forum on Banking Supervision at 3 a.m. … Fed Chair Jerome Powell will have a fireside chat with Spelman College President Helene Gayle at 11 a.m.

Biden moves on supply chains — With his administration still feeling the heat on inflation, President Joe Biden will sign an executive order later today directing the formation of a Council on Supply Chain Resilience — co-chaired by the National Security Advisor and National Economic Advisor — to develop a whole-of-government strategy for addressing the sorts of supply chain challenges that led to higher prices following the pandemic.

Covid-19 “led to unprecedented stress in our supply chains,” National Economic Council Director Lael Brainard told reporters on Sunday, adding that the administration’s actions will “strengthen American supply chains and bring down costs for American families.”

Biden’s actions on Monday will expand HHS authorities under the Defense Production Act to improve domestic manufacturing in the medical sector as well as directives to improve data-sharing across departments and agencies. The Energy Department and USDA will also announce nearly $500 million in funding for investments in clean energy supply chains and domestic food supply chains.

Regulatory Corner

A WTF at OCC — The Office of the Comptroller of the Currency tapped Prashant Bhardwaj for a $303,400-per year gig as its first Chief Financial Technology Officer. The problem? His resume was a farce, writes Fintech Business Weekly’s Jason Mikula. Among the alleged fabrications, the employment history Bhardwaj provided to the OCC included claims that he worked at Citi beginning in early 1994, when he would’ve been just 13 years old. He’s also been charged with three DUIs and his ex-wife sought a restraining order in connection with a divorce.

Bhardwaj’s ability to secure a high-profile role at the OCC raises questions about how he was vetted and how he performed. According to Mikula, the OCC did not respond to questions about how he became a candidate, the vetting process or what processes or information he may have accessed during his four-month tenure at the agency. Bhardwaj did not respond to Mikula’s inquiry on LinkedIn.

Meanwhile, over at the FDIC — Jasper Goodman reports that House Republicans are calling on FDIC Chair Martin Gruenberg and other officials to testify about alleged workplace misconduct at the agency.

The Economy

It’s the economy, stupid — Mileah Kromer, an associate professor of political science at Goucher College and the director of Sarah T. Hughes Center for Politics, which conducts the Goucher College Poll, makes the case that it’s time for Democrats to panic when it comes to how Biden polls on the economy.

No safety net — The gradual weakening and elimination of pandemic-era social safety nets poses a major challenge for Biden as he makes a case for a second term to key constituencies of the Democratic Party — including women, young people and people of color, POLITICO’s Garrett Downs, Olivia Olander, Michael Stratford and Marcia Brown report.

“Expanding these policies really did have a big impact on economic hardship,” Chloe East, an economist and visiting fellow at the Brookings Institute’s Hamilton Project, told POLITICO in an interview. Rolling them back, she said, “has caused a big increase in hardship among American families.”

Trenton Takes — New Jersey Gov. Phil Murphy’s bid to punish companies that maintained ties with Russia and Belarus following the invasion of Ukraine may have outkicked its coverage, POLITICO’s Daniel Han reports.

The state voluntarily suspended enforcement of its sweeping Russian sanctions law after the U.S. subsidiary of Kyocera, a Japan-based electronic company, won an injunction. But prior to that, the state’s Treasury Department “had begun the process to blacklist JP Morgan Chase, the largest bank in the world, as well as Xerox and the American subsidiary of Tarkett, a major turf field supplier and flooring company, according to public records obtained by POLITICO through the Open Public Records Act.”

CRYPTO CORNER

CZ in Seattle — Prosecutors are urging a federal judge to keep Binance’s founder and former CEO Changpeng “CZ” Zhao in the U.S. after he pleaded guilty to money laundering charges in Seattle last week, Reuters reports. His attorneys argue he poses “no risk of flight” and should be allowed to return to his home in the United Arab Emirates until his sentencing early next year, CoinDesk’s Nikhilesh De reports.