Lower-than-expected retail sales in January may indicate less resilient consumers. Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, joins Yahoo Finance Live to discuss why consumers are “hitting a wall.”
Samana told Yahoo Finance Live that while rising interest rates did not immediately impact spending, the impact is being felt in areas such as mortgages and auto loans. He believes this will “continue to slow the economy” and put pressure on consumers, who have shown resilience so far.
But Samana points out that consumers will continue to spend “as long as they have jobs.” To gauge consumer health, he suggests investors evaluate key economic indicators and be aware of rising costs and interest rates. Recent layoffs could impact labor statistics, and exposure to job losses “will eventually catch up with consumers,” he said.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
video transcript
Rachel Akuffo: Well, resilient consumers may be slowing down. January retail sales announced today fell more than expected. To analyze what risks lie ahead in the market, we spoke to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. Thank you for joining us this morning. So how far should we read this printed text?
Sameer Samana: We've been saying for some time that consumers will hit a wall, especially after the holidays. So if you look at what's going on in the labor market, which is starting to cool down, the fact that interest rates, even though it didn't have an immediate impact, every time someone refinances or refinances their mortgage, they're going to go up. If you look at people buying a new home or taking out a new credit card or car loan, they're paying much higher interest rates than they were a few years ago.
So we think that will continue to slow down the economy. And that will likely put downward pressure on consumers, who have so far been very resilient.
Brad Smith: And of course, we've focused on different opinions about consumers. It was the CPI earlier this week. Of course, today it's retail sales. What better measure for investors to measure this consumerism and resilience? And also the issue of that resilience as shown by retail sales, where is it now?
Sameer Samana: Yeah, I mean, consumers are going to spend money as long as they have jobs, right? As long as you have a job, as long as you have an income, you will probably spend. I mean, that's always been the case historically, right? They are some of the last to realize that a slowdown is imminent.
So I think what we need to do is look at these leading economic indicators. I think we need to realize how high interest rates are. I think most of us need to realize how much we spend just to maintain our household finances.
From that perspective, if the labor market weakens significantly, which it should as the year goes on, I think you'll see that in some of the layoff announcements and other areas that we're looking at. Consumers will eventually catch up with them, and they will probably take a hit later this year.
Rachel Akuffo: Mr. Samir, obviously economic data is going to be released this week. When it comes to economic growth risks that markets are still pricing in cheaply at this point, he thinks there are three in particular?
Sameer Samana: Yeah, so the first factor is inflation, right? So the challenge is that companies still have a lot of pricing power, albeit less than they used to. We see that wages are still fairly stable. Unfortunately, this has a lot to do with the fact that there is still a labor shortage.
And, to be honest, I think it's just the interest rates that are lagging this time. Because everyone he refinanced in 2020, 2021. I think the delay is a little longer this time. But honestly, if you look at history, the economy slows down about two years after the Fed first starts raising interest rates, and we're on track for that. And I think we'll really see the impact on interest rates later this year.
