"Q1 2024 - Following Breadcrumbs"

  • By: Joseph R. Tranchini, CFA, CFP®
  • May 2024









While they may be the sole archnemesis of a clean kitchen floor, believe it or not, breadcrumbs may actually have some functional purposes. Granted, I’m referring to breadcrumbs of the metaphorical variety, not necessarily the actual physical variety which are, for the most part, useless (unless your goal is to attract ants…).

While I wouldn’t’ exactly advocate for replacing a good ole-fashioned compass with breadcrumbs anytime soon, I think it is rather safe to say most people are familiar with the use of breadcrumbs as a navigational tool from the all-time classic story Hansel & Gretel. Follow the breadcrumbs and they will lead you to where you need to go. It is an allegory that applies rather handsomely to the world of investment research as well. In a lot of ways, that is what we as researchers do, we look for clues, trends, and information then we ‘follow the breadcrumbs’ until we arrive at a conclusion that makes sense. So, without further ado, let’s jump into our quarterly economic journey amongst the breadcrumbs.

The first breadcrumb along our journey… the composition of economic growth. It is no secret that the consumer is the largest part of the economy, therefore what the consumer does is going to ultimately be the undercurrent of the economy. One useful lens through which to organize and analyze what the consumer has done is to break consumer spending into two categories, goods and services. When looking into the consumer spending growth data over the past 2yrs (measured quarterly using year-over-year growth figures) what we see is that the average rate of growth for Goods Spending is less than half of the growth in Services Spending over that time. Goods Spending growth averaged 1.3%, while Services Spending averaged 3.0% over that time. There are many potential explanations for why this quantitative finding is the way it is, one of which I think warrants significant consideration and leads us to our second breadcrumb along our journey.

Our second breadcrumb pertains to the notion that the modern consumer has a higher affinity for consuming experiences over physical things. In fact, a 20yr study out of Cornell University highlighted that consumers had higher rates of happiness after consuming experiences compared to material things across thousands of study participants7. Additionally, the proliferation of social media outlets giving rise to the concept of someone’s online identity being intertwine with their life experiences may have accelerated this trend significantly, particularly in the post-pandemic era. Couple this notion with the reality that consumers have experienced robust wage growth over this period and a more coherent picture begins to come together. Perhaps it is the case that consumers are taking their increased earnings and funneling them into purchasing experiences & services (dining out, traveling, concerts, medical procedures, etc.) rather than simply consuming more/higher quality physical goods.

So does the story end there? Not quite, we still have another breadcrumb to follow.

Our final breadcrumb leads us to everyone’s favorite economic trend of all-time… inflation. And yes, that preceding sentence comes with a extra-large side of sarcasm. The trademark trend within recent inflation figures has been the divergence between the rate of inflation in goods as opposed to services. Over the past few years Services Inflation has been noticeably higher than Goods Inflation. One might even go as far as to say that if Services Inflation looked like Goods Inflation over the past few years we may actually be in a state of outright Deflation across the economy (a wild hypothetical, I know). With the breadcrumbs that we have assembled so far it becomes much more clear as to what our current economic reality may be, and also where we are headed. Higher wage growth lead consumers to spend more heavily on things they desired/needed more, experiences. Higher spending on experiences has lead to outsized economic growth in service-related areas of the economy, as can be discerned from the prior GDP growth figures analyzed). With high consumer spending and high economic growth in these areas of the economy, the market did what it tends to do in these situations, it adjusts. That adjustment has appeared to come in the form of higher prices for these services (if you want to go with the term Demand Pull Inflation that would be warranted).

Moving forward there are a number of potential routes the economy could take with regards to our path towards normal inflation. Higher growth in service-related areas of the economy could theoretically lead to new entrants and increased competition in those areas, which could in turn eventually lead to lower prices, with sustained economic growth. Another possible outcome would be a more secular shift away from consumers preferring experiences over things, which could lead to a re-composition of demand away from services and an eventual re-balancing of inflationary pressures (although this outcome seems unlikely). Finally, we could ultimately enter into a period of time where consumers ‘tighten their belts’ to augment savings which could, in theory, have both deflationary and contractionary effects on inflation and growth alike.

As is always the case, time will tell where we eventually end up, but for all the uncertainty and crosscurrents present in today’s economy there is one ‘evergreen tree’ of a constant that remains… no matter what happens, there will be breadcrumbs to follow… and we will do just that.


[See Below for Disclosures & Annotations]


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.



  1. FactSet. “Economics – Country/Region – United States”. February 1, 2024
  2. Bureau of Economic Analysis. “Gross Domestic Product, 4th Quarter and Year 2023 (Advance Estimate)”. February 1, 2024.
  3. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. February 1, 2024.
  4. Bureau of Economic Analysis. “Personal Income”. February 1, 2024.
  5. FRED. “5-Year Breakeven Inflation Rate”. February 1, 2024.
  6. FRED. “10-Year Breakeven Inflation Rate”. February 1, 2024.
  7. Amit Kumar, et al. “Waiting for Merlot: anticipatory consumption of experiential and material purchases”. August 21, 2014