In the last couple of weeks, we’ve witnessed a whirlwind in terms of economic data.

Inflation metrics have quickly outpaced predictions from top economists. And earnings season has shed light on some of the challenges our banking institutions face.

Throughout all of this though, the American consumer has remained surprisingly strong, all things considered. Even though discretionary spending waned from its pandemic levels, Americans are still driving up demand for homes, cars, and other big purchases.

But how much longer can that last? Or, to ask another relevant question, how is this even possible?

As inflation soars, the American consumer has battled higher prices and a weakened dollar. They’ve been able to do this because wages have inflated along with costs.

During the pandemic, U.S. wages grew by 7%. Now, they’re rising at a rate of about 4% – which is well below the 9.1% growth in inflation. And with such an imbalance between wage inflation and cost inflation, spending power is expected to decrease too.

The Wall Street Journal reports:

“Over the past year, wage increases have continued to exceed pre-pandemic levels, with year-over-year growth topping 4% each month.

“But those steady gains have been wiped out by high prices. When taking inflation into account, there hasn’t been a single month with year-over-year earnings growth since March 2021.

“Spending also rose over the past year, and like with wages, it was outpaced by inflation. Americans are spending more because of high prices, but adjusted for inflation, they are actually consuming less.”

This is a telling bit of information – especially since many of the most optimistic economists cite strong consumer activity as the reason why they’re expecting a mere mild recession.

When adjusted for inflation though, it appears that spending isn’t actually as strong as we once thought. Actual American consumption appears to be leveling off instead of increasing.

Take retail for example. Sales appear to be up 30% from pre-pandemic numbers. But when you adjust for inflation, they’ve only risen 15%.

Eventually, the increases in inflation will catch up with the slowing of wage increases. At that point, we may see a sharp decline in spending.

In fact, we probably will. It’s almost inevitable.

More Non-REIT News to Know About 

A few weeks ago, I reported on a new proposal by Netflix (NFLX) – the one to incorporate an ad platform into its streaming service.

As we learned in it Q1 earnings, sales declined sharply. And Netflix has since made more headlines with a swift round of layoffs.

The ad platform idea is supposed to remedy further revenue losses.

Many across Madison Avenue speculated on how this ad platform would play out. But now we know a little bit more.

It seems the home of Stranger Things and The Circle has found an exclusive partner in Microsoft (MSFT).

Historically, that pioneer in personal computing software has had a rather paltry presence in video ads. Who can forget the pummeling it took after the iconic Mac Vs. PC ads starring Justin Long?

But that was then. This is now. And as former Alphabet (GOOG) executive Tim Armstrong just said, “Microsoft just moved from supporting character in advertising to a main character.”

He added. “Netflix has probably the most valuable pool of inventory in the world of video advertising, which historically has been the most important area.”

Can it work? Or will Microsoft remain the old fuddy duddy in “film”?

Stay tuned to find out!

The World According to REITs 

 Today, I want to give an update on a real estate investment trust (REIT) I currently consider a Speculative Buy.

Easterly Government Properties (DEA) has one tenant and one tenant alone: The U.S. government. It rents its properties out to agencies such as the FBI, CIA – yes, DEA – and the like.

Today, it announced that, through a joint venture:

“… it completed the acquisition of the previously announced 67,793 leased square foot outpatient facility leased to the Department of Veterans Affairs (VA) located in Columbus, Georgia.”

That’s the seventh property out of 10 it’s promised to purchase for VA use “under predominantly 20-year firm term leases.” That’s one of the many things we like about DEA: How long its contracts run for.

Hey, the government doesn’t mess around with where it wants to be. So neither should its landlord.

Plus, considering what Biden keeps saying about government expansion… there could be plenty more room for growth for DEA up ahead.

Author’s Note: If you do determine this stock is right for you, make sure to purchase it at a smart entry point. Even the best of companies can burn you badly by buying in at inflated prices.

More By This Author: