Consumer Confidence Extremely Strong

Consumer Confidence - Strong Redfin Sales Report

The Redfin report showed year over year same-store sales growth for the week of November 3rd was 6.1%. That beat the previous week’s growth of 5.9%.

This is the strongest growth rate since the beginning of October. It signals the holiday shopping season is about to be fantastic. Month to date sales compared to the previous month were up 0.1%.

Same-store sales growth is the strongest in over 10 years which means retail sales excluding gas and autos will be strong. Oil prices have been declining. Therefore gas sales will weaken headline retail sales growth on a sequential basis.

Hopefully, consumers spend their gas savings elsewhere.

Consumer Confidence - Cycle High

The chart below explains why we should expect a strong holiday shopping season.

As you can see, the 13 week moving average of consumer sentiment just hit the highest point since the last recession. It’s interesting to see that consumers are very optimistic in the face of a volatile stock market.

Consumers are loving the near full labor market. And the acceleration in wage growth which are being combined with low inflation. The good news is the weakness in housing price growth should help housing become more affordable without causing homeowners to panic.

The biggest potential negative catalyst the consumer will face is rising prices because of tariffs. Businesses paying higher tariffs will hurt the economy. However, consumers are more important politically.

When consumers start paying these taxes, they may have negative feelings for the Trump administration. Which could then catalyze a trade deal.

Temporary dismay from businesses isn’t a big deal, but making voters angry is a problem. I’m operating under the assumption that no deal is made by the January 1st, 2019 deadline. That's when tax rates will increase from 10% to 25%.

The pressure for both sides to fold should be immense as that deadline approaches. Personally, I think a deal will be struck in Q1 2019.

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