As we head into the Thanksgiving holiday, we’re also getting closer to the big spending day with Black Friday, and there are a lot of different thoughts about how strong this black Friday will be, as consumers are still dealing with high inflation. One interesting note is that consumer credit defaults are still low and falling. As you can see in the chart shown in this episode from the New York Fed, consumer credit default is that a record low of 5.7%. It was 14.6% in the 2008 recession. One of the hallmarks of a recession is a rise in consumer credit defaults, resulting in a rise of third-party collection activity which is not happening yet. So, despite record-high credit card balances being carried by the consumer, the rate of default is comfortably low. This is a good sign for holiday spending and the economy in the near term.
The Cost of Thanksgiving
According to a report produced annually by the Farm Bureau, the average cost of Thanksgiving dinner has increased by 20%. We think this is a neat indicator to see where prices are this time of year and there’s no surprise that inflation has found its way to the Thanksgiving table. The 20% increase was a little higher than we expected, however, a lot of that came from turkey which was up over 21% by itself. The average price of the Thanksgiving dinner went from $53.31 up to $64.05. Of that $10 increase, $5 came from the turkey. While getting ready for Thanksgiving, you might want to prepare to spend a few extra dollars to prepare for that family meal this year. Adjusting to ham might save you a few extra dollars for Black Friday spending.
We got the CPI report a few weeks ago. We went over that report and talked about how it appears as though inflation has peaked. We received further evidence of this assumption last week with the Producer Price Index report. This report shows the prices that producers are paying, while the CPI report shows the price that consumers are paying. The report showed that PPI was up 0.2% in October. That was less of an increase than was expected. As you can see in the chart shown in this episode, prices for the producers have really fallen off a cliff. The chart also shows that inflation of goods was up 10.5%, as well as services up 6.3%. That sounds bad but to put it in perspective, previously the number reported for goods was 11.3%. Energy has pulled back some but one area that we would like to see come down is food. We all feel the pain of this being up. For further evidence of peak inflation, the rate hikes that the Fed is doing typically work with a lag. As a result, we expect these numbers to continue to come down. We will know for sure as we continue to analyze the data.
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