Stocks Helped by Holiday Shopping

The stock market is likely to continue to move up in this Thanksgiving week.  Although US economic data releases will be few, news reports regarding holiday sales and price discounting should underscore expectations that the economy will avoid recession and that inflation will fall further.  The consumer is expected to remain solid in this holiday season, helping to prevent recession.  And, large price discounting may be highlighted.  To be sure, high-frequency data -- Unemployment Claims and commodity prices -- suggest the US economy already is slowing.  

Surveys, such as one conducted by Deloitte and National Federation of Retailers (NFR), suggest holiday spending will remain robust.  NFR estimates holiday sales will increase 3-4% y/y.  Deloitte sees average spending per person exceeding the pre-pandemic level for the first time.  However, spending on heavily discounted items, such as those offered on Black Friday and Cyber Monday, is expected to be more prevalent than in 2022.  Deep discount promotions would help hold down the CPI.   

A still solid consumer would mitigate fears of recession, even as the economy slows.   The labor market already appears to be weakening.  Unemployment Claims moved up in early November and suggest that not only have layoffs increased but hiring has slowed.  If these trends continues over the next couple of weeks, it will point to an even weaker Employment for November than October's (adjusting for the impact of strikers -- subtracting in October and adding in November).  

Commodity prices also continue to point to softening economic activity.   Some major indices -- CRB and S&P GSCI -- have fallen further in November.  Others -- SSE Consumer Commodity Index -- flattened out after falling in October.  

With these weak high-frequency indicators flashing soft economic activity, the Atlanta Fed model's early estimate of 2.0% (q/q, saar) for Q423 Real GDP seems too high.  This estimate is near trend and inconsistent with the increase in the Unemployment Rate seen in September and October.  The model's estimate risks moving down as more data become available.