Simona Mocuta, State Street Global Advisors Senior Economist joins the Yahoo Finance Live panel to discuss the latest market action.
- I want to bring in our next guest. Simona Mocuta is State Street Global Advisors senior economist. She joins us now. And, Simona, you just heard Emily talking about it. It's interesting. Because we've heard so much about Americans, you know, maybe saving those stimulus checks that they may have gotten. But that seems to be changing if you look at this retail report here. So maybe talk to me about the propensity to spend out there changing the farther along we get in this pandemic and what people should expect in this next wave of stimulus to come.
SIMONA MOCUTA: Sure. I'm-- I'm certain that the propensity to spend will improve as the opportunity to spend will improve, right, as the economy will reopen more broadly. I would not necessarily consider the January report as absolute evidence of that. And I'll tell you why. So on one hand, you look at the consumer spending, the retail sales really ending 2020 with a fizzle, right, and starting 2021 with a bang.
But with every data released, with every macro data released during this crisis, I think we are learning that you have to take everything with a little bit of grain of salt and try to understand what are the mechanics behind that headline number. I mean, all of us, when we saw that 5.3% this morning, we had to look twice to make sure it was real. And I think that part of it that's [? a ?] [? little ?] not real. It has to do with seasonal patterns, right?
So a lot of things that in a typical, normal year would have happened in November and December, this year, were constrained, right, because of restrictions on mobility, people unable to take vacations, people unable to do the typical spending, and not to mention the inventory shortages, right? Things you would have liked to buy were not available to buy.
So that really-- because we expect things, sales to do really well in November and December, the seasonal factor really detracted. And then January came along. And the, you know, underlying expectation is that things cool off, and they did not. And so we ended up with a 5.3%. The reality is-- is somewhere in the middle between what was expected and what we got, I would say.
- So, Simona, looking to year end here. Because you have said that you believe there's further upside, at least when it comes to retail sales. You think that we can build on this momentum. But the upside is limited because of concerns on capacity as well as retailers inability to deploy. What are you seeing right now that you think maybe points to some red flags as we look to the second half of the year?
SIMONA MOCUTA: I mean, just try to annualize the 5.3%. Then ask yourself, is it sustainable, even in the context of a personal-savings rate that's, as high as it is, unlikely to get higher because of additional stimulus checks? So we are going to moderate in terms of the pace. But level-wise, you know, when you look at services consumption, that's where you definitely have to say, we have to dig ourselves out of the 2020 hole, right?
Goods consumption last year actually did quite well despite, you know, the fact that November, December, the last few months of the year were a bit softer than expected. It's in services that you're going to see the biggest change this year. And the reason I expect that to improve as time progresses is because, right now, that spending is still constrained-- not because of lack of finances or lack of money to finance the spending but because of inability to do so.
So as we reopen, as vaccination rates improve, as cases, which thankfully have already come down in terms of the COVID case incidence, those improve, all of those will basically open the doors for us to see that improvement in services consumption that we-- we want to see.
- And, Simona, I'd be curious to get your take on what that means for maybe this pull forward. We've already heard some, you know-- some forecasters out there issuing, in terms of Fed's. The pull forward in the interest rates we could potentially see here. We saw that from Goldman Sachs-- a few others weighing in, as well. On what maybe inflation expectations could be changing if we see more people spending rather than saving some of these stimulus to come through here? So what's your expectation on what people should be bracing for on the inflation front?
SIMONA MOCUTA: Well, in terms of inflation expectations, I think you've already seen a tick higher. In the Michigan survey, for instance, you know, we've seen the short-term inflation expectation really jump. They did the same, you know, in the past. So the question is, how sustainable this is? On the other side of a strong demand equation is, how quickly can supply accelerate to meet that demand, right?
And the one good thing is that we know in the service industry as a whole, once you get past, you know, imposed limitation to supply in the form of capacity limits-- you know, maybe restaurants are working at half capacity. The seats are there. The tables are there. The capacity exists. So you shouldn't see as tremendous an inflationary impact as you would believe, you know, you might be looking at if it was just purely a demand issue.
I think it's possible that in the transition, you have a period of mismatch between demand, which is ready to go and, you know, go out the door, as we saw in January, and perhaps supply, which is still a little held back. But once things normalize, I would say in the latter half of the year in terms of fully opening of economy, I think that that inflationary impulse perhaps recedes a little bit.
So it's-- to my mind, there is no question inflation is probably the most critical question in 2021 for economies, for markets, as well. And I think the Fed will be watching this very carefully. But at the same time, we are now in an average inflation target framework, right? That doesn't mean that the moment you go above 2 you have to-- to change your stance. You might have to start changing your language. And that's what we are looking for in the first instance.
- Simona Mocuta, State Street Global Advisors senior economist. Good to talk to you today. Thanks so much for stopping by.