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Annotation: Retail consumer spending remains strong, and Caden expects to rise 0.44% a month through the end of December '23. Contrary to some consensus feelings, our research panel data shows that increased spending is not financed by increased debt servicing costs, even in an increasing interest rate environment (with Credit Card rates well over 20%) and bookended by inflationary pressures with September CPI increasing nearly 4%. Cost of debt service is projected to decrease ~1.5% a month through December '23 (see Fig 1.1). Rather, as indicated by the Bureau of Economic Analysis (White House CEA Oct. 27, see Fig 1.2), nearly all gains in nominal aggregate compensation were offset by inflation, as the PCE measure of inflation (also BEA Oct. 27, see Fig 1.3) jumped 0.4% in September, at an annualized 2.9% rate. Therefore we see significant confirmation that in fact, increased retail spending is financed by savings that we expect to yield to a lower personal savings rate in the coming months. 

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As further confirmation, Caden sees a strong negative in-period correlation (and predictable covariance) between Producer Price Index (as a measure of the cost/pricing power of the entire marketed output of US producers) and our research panelists’ overall credit card spending, consistently looking back 24 months (See Fig 1.4).

We pose two hypotheses for this:

1. As PPI tends to lag CPI in terms of consumer effects, it appears that price sensitivity to credit card-financed spending is acute. In other words, as real prices rise consumers are responding in highly sensitive ways by reducing credit spending in kind - but their overall spending (likely financed by savings) remains robust and highly price inelastic.
   

1. Since PPI is best used as the optimal adjuster of inflation-driven growth for US producers, and is thus a prime input for real GDP growth, isolating consumer credit spending is a much less biased predictor of mid-term economic growth than more aggregate consumer spending.

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