Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / How the World Cup Distorted US Consumer Spending Data
Transcript
- Lucas: So the Fed's Beige Book came out this week, and buried in all the usual language about 'modest growth' and 'subdued inflation expectations' was this really specific detail about the World Cup. Luna: Right, the one about bars and restaurants getting a noticeable lift from the tournament. Lucas: Exactly. The Fed said — I'm paraphrasing — that the World Cup gave bars and restaurants a needed boost, even as consumers were flashing warning signs elsewhere. To me, that's the most interesting tension in the economy right now. Luna: Because it's like a sugar high. You have this concentrated burst of spending tied to a specific event, but underneath, the trends tell a different story. Lucas: Yeah. And we have the data to back that up. Wholesale prices just dropped 0.3 percent in June, largely on a big decline in gasoline. Core CPI is still running around 3.3 percent — not hot, but sticky. The consumer is still spending, but the mix is shifting. Luna: And that shift matters for the Fed's thinking, doesn't it? Lucas: Massively. Because if a lot of the spending is concentrated in event-driven categories like bars and restaurants, it's not necessarily sustainable. Once the World Cup ends, those extra dollars may dry up. And if consumers are already tapping credit cards more — which we know they are, data shows revolving credit ticking up — then you have to wonder what happens in the fourth quarter. Luna: So the Fed is looking at a consumer that looks okay in the aggregate but is actually getting more fragile underneath. Lucas: That's the frame. And the Beige Book is useful precisely because it's anecdotal — it gives you texture that the hard numbers miss. The hard numbers say retail sales were up. The Beige Book says, yes, but a lot of that was people buying overpriced beer at a sports bar. Luna: Which is still economic activity, to be fair. Lucas: Absolutely. It's real GDP. But the sustainability question is key. And it ties into this broader concept of 'funflation' — the idea that spending on experiences and entertainment is pulling ahead of spending on goods. We've talked about that before. Luna: And the World Cup is basically the ultimate funflation event. It's a concentrated burst of experiential spending. Lucas: Right. So the question is, once that event passes, does the spending revert to goods, or does it just vanish? If consumers were borrowing to fund those bar tabs, they might pull back sharply. Luna: And that's where the credit card data becomes really important. If you look at the latest Fed numbers, revolving credit is growing at around 5 percent year-over-year. That's not crisis territory, but it's a step up from a year ago. Lucas: And it's happening even though the Fed has cut rates. The effective fed funds rate is at 3.63 percent now, down from over 5 percent. So credit is becoming cheaper, but the fact that consumers need to borrow more to sustain their spending suggests real wage growth isn't keeping up. Luna: Average hourly earnings are up to $37.60, but inflation has eaten into a lot of that. Real wages are positive but modest. Lucas: Exactly. So the World Cup boost is a nice story, but the structural picture is of a consumer that's working harder just to stay in place. And that's exactly the kind of thing the Fed is watching. Luna: I wonder if the World Cup effect is big enough to actually move the needle in the GDP data for the third quarter. Lucas: Possibly. The tournament ran through mid-July, so some of the spending will show up in Q3. But given the size of the US economy — nominal GDP is over $31 trillion now — a few billion in bar tabs is a rounding error. The signal is more about the composition. Luna: So it's a leading indicator of consumer health, not a driver of aggregate output. Lucas: Exactly. And that's what makes the Beige Book valuable. It gives you that qualitative read. The Fed's district banks talk to business owners, and they hear things like, 'Yeah, June was good because of the World Cup, but July is looking soft.' That's the kind of nuance you don't get from the jobs report. Luna: Speaking of the jobs report, we did see the unemployment rate tick down to 4.2 percent from 4.3 percent. Payrolls added about 57,000 jobs — not great, but okay. So the labor market is still hanging in there. Lucas: It is. But initial jobless claims dropped to 208,000, which is low. So layoffs aren't the issue. The issue is that hiring has slowed. And that's consistent with a consumer that's cautious. Luna: Right, because if businesses aren't confident in demand, they're not going to hire aggressively. Lucas: And the World Cup gave a temporary lift to demand in one sector. But you can't build a long-term hiring plan around a soccer tournament. So the Beige Book is really telling us to look past the headline and ask what happens next. Luna: And that's where the wholesale price decline becomes interesting. If producers are cutting prices — gasoline down sharply — that's disinflationary. But it also suggests demand is softening. Lucas: Yeah, the PPI drop was led by energy. So that's good for consumers at the pump, but it signals weaker global demand. And with China posting its slowest quarterly growth since 2022, that's another headwind. Luna: So the World Cup story is almost a distraction from the bigger picture. Lucas: In a way. But I think it's helpful to see how real-time data can be misinterpreted. If you just looked at June restaurant sales, you'd say, 'Wow, consumers are strong.' But when you dig in, you realize it was a one-off. Luna: Which is a good reminder for investors. Don't extrapolate a seasonal or event-driven blip. Lucas: Exactly. So the macro picture is one of a gradually cooling economy, with pockets of strength that are tied to specific events. The Fed is probably going to stay on hold for now — maybe one more cut later this year if the data softens further. Luna: And that brings us back to the 10-year yield. It's at 4.54 percent today, down a bit on the week. The curve is still un-inverting, which is a sign that markets expect further easing. Lucas: Right, the 2-year is at 3.71, so the spread is positive again. That's typically a bullish signal for the economy, but in this case it might be more about expectations of rate cuts than genuine growth optimism. Luna: So the World Cup gave us a nice little boost, but the underlying trend is what matters. Lucas: And that's what we try to zero in on here. If walking through the economy with us has made something click for you, it would mean a lot if you threw a couple of bucks into the tip jar. You can find us at buymeacoffee.com/fexingo. No pressure, just helps keep the show ad-free and independent. Luna: Yeah, completely. And it lets us keep doing deep dives into stuff like this rather than chasing headlines. Lucas: Exactly. So, back to the data — I want to look at what happens to consumer credit now that the World Cup is over. If revolving credit continues to grow at 5 percent, that's a sign that the post-event hangover might be real. Luna: And we'll get the July retail sales data in a few weeks, which should give us a clearer picture. Lucas: Right. In the meantime, the Beige Book is telling us to be cautious. The World Cup helped, but it's not a trend. Luna: It's a story, not a signal. Lucas: Exactly. And that's the takeaway for today. Thanks for listening, and we'll be back tomorrow with another angle.