Bob & Ben React: The Consumer Isn’t Broke — The Data Says Otherwise

I've seen a lot of economists go come out and say, look, savings is way down from where it was. And that's true in savings accounts, but those pay basically no interest. So a lot of people shifted a lot of their savings over into money market mutual funds. So you really kind of have to count both of them and add them together. And from that standpoint, they're up 4.2% on a year over year basis. And on an inflation-adjusted basis, they're at a record high. People's debt is not as bad as we're hearing, and people's savings is at a record high in this country. And so as a result, even though there are some headwinds from job creation and some of the other economic metrics, we still see inflation-adjusted growth in core retail sales, which is the key piece of the US economy, remains sound, surprisingly sound, given some of the headwinds headwinds that we're seeing in the media on a day-to-day basis. Then you come to the tariffs. We were predicting 3.5% to 4% inflation by this point, uh, and that just hasn't come to pass. Like, they're all in the high 2%. But one of the key things to consider here is, one, a lot of companies have been absorbing the tariffs, and that those will at some point be passed on to consumers. So we will see some upward pressure on inflation for consumer goods. But by the same token, we also know that 44% Consumer Price Index, the CPI measurement, is driven by housing. The price of houses is only up like 0.2% in the last year, and rent growth is just somewhere right around 1%. And so we know that household inflation, housing inflation, is going to remain low in the CPI metric, and as a result, it will keep the inflation measurement range-bound right around 3%.

Yeah, he's calling out a, a very important trend and something that we have pointed out many, many times, and that is consumer spending continues to just hit records, and even inflation-adjusted consumer spending. Why does that matter? Well, because 70% of the gross domestic product of the United States is consumer spending. So as long as consumers are spending, you know, suppliers are supplying that spending, and that means economic growth. And so, so So the question he's answering here specifically is, will it continue? And looking at consumer savings, again, there's a lot of narrative around inflation and people are under stress and high debt loads. But if you actually look at the actual savings they have and include money market accounts, that is actually record high. And inflation adjusted, it's still record high. And so that's likely to support continued consumer spending. So the consumers are just not as unhealthy as people want to say. Then the debt burden is actually lighter than people say relative to earnings, relative to the, to the income growth that people have had. The debt is not that high. So again, it just continues to support the narrative that consumers are going to continue to spend and that we're looking at that going to continue to drive economic growth.

Yeah, I think this is a great example of, you know, where the kind of headlines disconnect from the actual data, right? And it's important, you know, when you see, oh, savings rates have declined for consumers, and the implication is that, you know, the trends have gone negative and consumers are in a bad spot. Well, maybe you just should include money market accounts alongside of savings accounts because that's where a lot of the short-term liquidity has shifted to. And if you group those together, all of a sudden you're seeing what you just shared of, you know, record levels of savings and liquidity. And, you know, he didn't show that in the chart, but, you know, real wage growth, inflation-adjusted, has continued to climb over the—

hit records. Right.

And so the consumer is in a very, very healthy spot right now.