"Q4 2022 - One Cool Cat: The Consumer"

  • By: Joseph R. Tranchini, CFA
  • February 2023








Cool under pressure.

In many ways, this simple three-word phrase pretty much sums up the state of the U.S. Economy over the past year. Looking back over the past 12 months of economic and financial market developments feels more like an exercise in staving off stomach ulcers rather than an exercise in financial analysis. Even still, despite the twists and turns and loop-de-loops we have seen and experienced along the way one concept remains everlasting, the U.S. Economy is stronger today than it was a year ago. Understandably, it feels weird to make such a proclamation given how much has happened over the past year, and in light of the fact that 2 of the past 4 quarters of economic activity were actually recessionary, and yet… here we are.

One of the major highlights of the past year has been the uncanny resiliency of the U.S. consumer. While filling up a gas tank when prices are north of $4.00 is enough to make one seriously consider reverting back to the good ole’ horse-and-buggy days, the consumer continued to press on, innovating new ways to make household budgets work despite higher costs across the board. Additionally, an overly strong labor market provided workers with the ability to revisit their compensation arrangements in a beneficial way which manifested itself in one of the strongest years on record for wage growth. Wage growth, in tandem with consumer substitution effects, provided just enough insulation against the cold, harsh effects of inflation to allow people to maintain, and in many cases increase, their standard of living. All-in-all what this most likely suggests is the following: you can raise prices, but you can’t make people take-it. Moving forward into 2023, many of the factors that lead consumers to find success in the past year are still present. The labor market continues to be strong, and consumers continue to be gainfully employed. The wage growth of last year is most likely to be a ‘sticky’ effect, as would be suggested by classical economics. Finally, a brand-new trend is emerging that has the potential to significantly alter the state of the consumer for the better… Disinflation.

Making this observation almost feels like coming back to shore after being lost at sea for many days but… inflation has come down significantly. In the past 3-4 months overall inflation levels have all but receded close to 0% (See Notes in Above Section). Depending on what good or service one is analyzing, disinflationary developments have been either non-existent, or remarkably strong. A general rule of thumb to the current landscape regarding what prices have gone up or down can be summarized as the following: if it is dependent on interest rates, it has probably decreased in price. So, what does that mean exactly from a economic surveyor’s standpoint? It means the ‘medicine’ administered by the Fed is working. As a reference, two of the most interest-rate sensitive realms of the economy have experienced pronounced price contractions, housing and autos. Home prices, as measured by the S&P/Case-Shiller 20-City Home Price Index, have contracted every month since the high in June 2022, dropping -4.2% cumulatively over this time (roughly -10% annualized). Used Auto prices have decreased by -10.6% since January 2022, and New Auto Prices have completely stagnated since September 2022. Higher interest rates are likely to stick around for the duration of 2023, as the Fed remains committed to bringing inflation sustainably down, so the concept of these contractionary price effects reversing themselves by way of a policy pivot to outright accommodative monetary policy seems out of reach.

There is a great deal of power in having choices, and there is no one with more choices than the U.S. consumer. The choice to buy a different mix of groceries, the choice to opt-out of buying a home or car, the choice to pursue a higher paying occupation or role, these are all invaluable tools that the U.S. consumer used, in full, over the past year to stave-off the effects of higher prices, and it was (and continues to be) the primary source of strength for the U.S. Economy. As time goes on, the level of choice available to consumers is likely to continue to increase and bring along with it more economic power and abilities that will only serve to further increase the standard of living for U.S. consumers. Since it is very unlikely to experience increases in the standard of living without ensuring economic growth, the outlook remains as favorable now as it ever has.



[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 2, 2022.
  2. Bureau of Economic Analysis. “Gross Domestic Product, 4th Quarter and Year 2022 (Advance Estimate)”. February 2, 2022.
  3. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. February 2, 2022.
  4. Bureau of Economic Analysis. “Personal Income”. February 2, 2022.
  5. FRED. “5-Year Breakeven Inflation Rate”. February 2, 2022.
  6. FRED. “10-Year Breakeven Inflation Rate”. February 2, 2022.