CONSUMER WATCH
Consumer spending continued to look solid in September. Bank of America total aggregated credit and debit card spending per household rose 6.2% year-over-year (YoY), while spending excluding gasoline increased 5.1% YoY. Notably, both are the third strongest growth rates in the past four years.
Seasonally-adjusted total card spending rose 0.2% month-over-month (MoM), while spending excluding gasoline was little changed. Overall, spending growth remains well above the 2025 average rate
Note how Retail ex-gas spending has flattened since June, in nominal dollars so probably down in real terms.
This next chart shows how necessities are taking a larger share of spending in all income categories:
Should we be concerned about the easing in household spending and after-tax wage growth for those with the top 5% of incomes? For now, probably not, as in our view this spending growth is likely being driven by wealth effects rather than wage gains.
Absent a sharp correction in equity markets, there is little reason to expect them to retrench their spending. However, developments here are worth watching as this cohort comprises a significant proportion of overall consumer spending. They also tend to make outsized contributions to several discretionary spending categories
Now that summer is over, the next big gauge of consumer momentum is how people spend during the run-up to, and over, the holiday season. It is early days, but September spending on holiday items ran well ahead of 2025. Given the backdrop of firmer after-tax wage growth and breadth across retail and services categories, this is perhaps not surprising. However, some of this spending strength could be due to rising prices as opposed to more purchases.
FYI, my proxy for retail inflation is up 3.7% YoY in August, roughly unchanged since June but up from less than 2.0% in 2025 and Q1’26 (1.8%).
Inflation fears on the rise as one-year outlook in Fed survey hits highest level since May 2023
The central bank’s Survey of Consumer Expectations indicated that the median view for inflation over the next 12 months rose to 3.9%, up 0.3 percentage point from August and the highest level since May 2023, when the figure was at 4.1%.
The three-year expectation edged up 0.1 percentage point to 3.3%, while the five-year view was unchanged at 3%.
One closely watched bond market indicator known as a breakeven shows the five-year outlook around its highest level of the year at 2.35%.
Similarly, the survey found that household spending growth is expected to hit 5.5%, also up 0.3 percentage point month over month and the highest since May 2023. (…)
HOUSING WATCH
- Mortgage rates are up 25% from their recent low:
- Demand is plummeting:
- Sellers outnumber buyers by 60%. Something has to give.
(…) So listing prices show what sellers are struggling with. Those listing prices have been sinking in Florida, Texas, and California for the past few years. Transaction prices have also fallen or plunged in many markets in these states. But listing prices are now suddenly sinking in New York, where transaction prices had held up. (…)
Lofty US Yields Lure Strong Investor Appetite at 10-Year Auction
Long-term bond yields pared their rise on Wednesday after the US Treasury Department’s $39 billion sale of 10-year notes was awarded at 5.3%, well below the prevailing yield seen before the auction — an indication of solid demand.
“This is showing that finally the deeper-pocketed guys find these levels appealing,” said Monty Gandhi, rates strategist at SMBC. “Around 5%, we heard some of these larger players mention that they were unwinding their shorts, and my guess would be slowly they are getting back in.” (…)
The bid-to-cover jumped to 2.77%, the most since 2016. Non-dealer investors took down a record 97.5% of the auction. (…)
OIL WATCH
Oil Retreats as Trump Rules Out Attacks on Iran Before Midterms
Three Saudis killed in Houthi attack on Riyadh airport
Syria weighs military aid for Saudi Arabia amid Yemen war, sources say
U.S. Forces Complete Withdrawal From Iraq
- Tanker rates just hit a new all time high: shipping now adds over $40 to the price of a barrel (Zerohedge)
- Refiners have to pass on shipping costs, so diesel crack spreads quickly shot up back over $100, as market laughs at the emergency release of 100MM barrels. Meanwhile, most still can’t get physical oil and Dated brent is almost back to all time highs (ZH)
US Election Monitor: October 8 Update
From Goldman Sachs:
Senate
Where things stand: Prediction markets imply a 65% chance that Democrats win a Senate majority, which requires a net gain of 4 seats. Polling averages show Democrats ahead in 7 Republican-held seats as well as all of their own close races (Exhibit 3), but most sit within the margin of error.
What has changed: Prediction markets moved further toward Democrats over the past week, lifted by polls showing them leading in Kansas and leading by a wider margin in New Hampshire, with continued albeit narrow leads in other key Senate races. The Republican Senate spending advantage grew to more than $200 million, but the gap in ads aired through September appears much narrower. Republicans boosted spending by $8 million and $5 million to defend seats in Kansas and South Carolina, signaling those races are tighter than expected. The mail ballot requests lean more Democratic in Ohio, Maine, and North Carolina than in 2024, though so far these likely account for only about 25% of total mail ballots (based on the 2022 midterm election).
House
