No Optimism On Wages, No Problem

The NY Fed’s consumer expectations survey had shocking results. Median spending growth estimates for the next year spiked. That increase was driven by low income households. The main narrative is the COVID-19 recession is hurting the poor the most. That’s correct. Median earnings growth estimates for the next year stayed at 2% which is below last year’s average of 2.3%. The probability that the unemployment rate will rise in the next year (according to consumers) rose from 35.4% to 40.1%.

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Expected household income growth stayed at 2.1% which is below 2019’s average of 2.8%. It appears consumers are willing to spend more without much optimism on wages, earnings, or the unemployment rate.

As you can see from the chart above, estimates for spending growth rose 0.6% to 3.7% which is the highest growth estimate since July 2016. We already know medians aren’t disproportionately impacted by the rich. The survey showed this improvement was mostly driven by households making under $50,000.

This improvement could be related to the consumer’s low debt service ratio. Plus, consumers might anticipate their own pent up demand for spending on leisure and hospitality. They might plan to go out to dinner more. Anecdotally, it seems more obvious than ever that we will spend more in 2021 if the vaccines are distributed effectively. It’s just surprising this spending expectation comes along with tepid economic estimates and the fact that it is coming from people in households making less than $50,000.

Worst Short Selling Market Ever

As you can see from the chart below, the most shorted stocks have had 17 record closes in Q4 which has beaten the major indexes.

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