Outlook Consumer financial health and spending remain vital drivers of U.S. economic growth. Year-over-year, consumer spending stands at approximately 5.6%, consistent with rates typically seen during periods of economic expansion. On the balance sheet side, household leverage has improved markedly over the past decade. Total household liabilities relative to personal income have declined from their 2008 peak to levels not observed in three decades, while liabilities relative to net worth have fallen to lows last seen in the early 1970s.1 These measures encompass all kinds of consumer debt which include credit cards, auto loans, student loans, home equity loans, mortgages, etc. The largest component, mortgage debt, remains healthy, supported by low delinquency rates. However, delinquencies on credit cards and auto loans have been trending higher, approaching levels typically associated with more challenging economic conditions.2 While rising short-term credit stress bears monitoring, the broader picture remains encouraging: overall consumer debt levels appear sustainable, providing a solid foundation for continued economic activity.
. . .
The U.S. equity market climbed higher to post its best week since the beginning of August, supported by strong corporate earnings, increased optimism over trade talks between the U.S. and China (as a meeting is set to take place between the two leaders during President Trump’s visit to Asia), and an encouraging release of long-awaited inflation data. The government shutdown remains ongoing; however, on Friday, the Bureau of Labor Statistics released the Consumer Price Index (CPI) data specifically as a benchmark for the Social Security Administration to gauge the cost-of-living adjustments in benefit checks. The CPI reading has been the only official economic data to be released since the shutdown started on October 1st. The CPI data showed a 0.3% monthly increase in September, bringing the annual inflation rate to 3.0%. Both readings came in below expectations of 0.4% and 3.1%, respectively. Excluding volatile categories of food and energy, core CPI showed a 0.2% monthly rise and a 3.0% annual rate. Both measures also came in below expectations of 0.3% and 3.1%, respectively. The largest contributing factor to the headline figure was a 4.1% jump in gasoline prices, whereas the other categories came in roughly subdued. Food prices increased 0.2% during the month. On an annual basis, food and energy rose 2.8% and 3.1%. Shelter costs, which comprise nearly one-third of the weighting in CPI, rose a minimal 0.2%, and are up 3.6% for the year. This report is the final significant data point the Federal Reserve will receive before its interest rate decision on Wednesday. While inflation is not slowing down, it is also not surprising to the upside anymore, which will most likely keep the Fed on track to continue cutting rates. Inflation is not the driving concern for the Fed. Powell and other committee members have made it clear they have shifted focus to softening labor data and will continue to justify their stance on the dual mandate, even if that means inflation is above their long-term target of 2.0%. Markets are pricing in a fairly certain expectation that the central bank will lower its key overnight benchmark borrowing rate (the fed funds rate) by a quarter of a percentage point at the meeting this week, which would bring the target range to 3.75% - 4.00% from its current range of 4.00% - 4.25%. Participants are also pricing in another 25bps cut at the December meeting.3
[1] https://fred.stlouisfed.org/ [2] https://media.ycharts.com/ [3] FedWatch - CME Group | 
