No, Consumers are Not Slowing Down (Yet)

Many analysts and financial media have begun attributing recent weakness in services to the spreading Delta variant. Weakness may be present, but everyone must consider the seasonal tendencies of consumers when digesting the plethora of new-ish alternative data. Charts of OpenTable reservations, TSA checkpoints, and more are being used to support bearish perspectives on consumers and financial markets. Similar perspectives have had a very poor track record throughout the pandemic.

Consumers habitually shift away from real estate and services beginning in late August as vacations come to an end and kids return to school. The chart below shows the seasonal component found in Google search activity for many of the alternative data points tracked by investors. Searches for apartments to used cars all quickly recede into year-end after peaking in early July.

Remember much of the alternative data like OpenTable reservations and TSA checkpoints are not usually seasonally adjusted. These measures will naturally fall as summer ends. Last year these seasonally tendencies were of less concern given the unusual circumstances of school and work from home, but we need to become more cognizant moving forward. 

Additionally, consumers move away from services and into goods as the big holidays approach. Again, non-seasonally adjusted services will likely suffer as they always do into the fall months!

Fortunately, consumer spending remains steady according to credit card transactions tracked by Affinity Solutions. Note these measures have been adjusted for seasonality. 

Our preferred measure of consumers’ intentions to spend remain Google search activity, which we also adjust for noise and seasonality. The chart below shows the rolling five-week change in search activity for prominent going-out (blue) and staying-in topics (orange). The improvement in consumers’ searches may not be as robust as January through March 2021, but provides some optimism for the month ahead.

Job-seeking has recovered faster over the prior month for part and full-time positions alike. Telecommuting (i.e. work from home) remains a dominant theme. Economists estimate payrolls at 750k for August, which should keep central bankers and investors content. 

Lastly, housing has been showing signs of slowing with falling sales to list prices. However demand remains quite firm with searches for nearly all aspects of the home buying process gaining momentum. Improving prices and buyer power may help the housing market not crash, but slow down as it likely should. Rising inventories should help aid the overall health of the market as well.

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