Despite promising job growth in recent months, concerns about rampant inflation remain top of mind for investors and consumers alike. What could these lingering factors mean for the health of the economy in 2022? In this segment of Backstage Pass, recorded on Jan. 14, Fool.com contributors Toby Bordelon, Rachel Warren, and Connor Allen discuss.
Toby Bordelon: A lot going on here, what do you think Connor?
Connor Allen: The great thing about talking about the economy is that there's so many different factors that we can all be right and have very different answers.
Rachel Warren: True.
Connor Allen: [laughs] When you talk about spending being reduced in December, Toby, you mentioned how it could be inflation and it could be supply chain issues and the stuff that you were talking about, Rachel, it could be that.
But one thing that I want to talk about is something that I don't know if a lot of people have thought about this and that's that savings rates are going down rapidly throughout 2021.
At the beginning of 2021, savings rates were close to all-time highs and they slowly just declined throughout the year. I'm expecting the reason for that is that throughout 2020 and some of 2021, there was a lot of government stimulus, and people either did not have to work and there was a lot of money saved up in their accounts. Then toward the end of 2021, that's starting to dwindle.
You look in December and the savings rate is down lower than it has been throughout the entire year and that could potentially be a reason that retail spending was down because people didn't have as much money. Now, it could be a ton of different reasons, but that's just one that I've thought about.
Another one is that consumer demand was just hitting all-time highs throughout 2021, just over and over and over again. Maybe everybody bought everything that they wanted to buy throughout 2021 and in December and the holiday season, they were like, well maybe we'll just have a smaller Christmas this year. Those are some of my thoughts.
Toby Bordelon: I'm going to make a point. There's a lot going on that we can't really necessarily tease out, especially with just like this is one month of data. We're talking about December here. I do like what you said, Connor, about savings rate dwindling over the year. That certainly could feed into it, especially when you consider we're talking about retail spending, not necessarily all of consumer spending.
Money is fungible. If you're sitting at the beginning of the year with a big savings account and you've been locked up [laughs] for most of 2020, you might think to yourself, now is the time for big-ticket vacation.
Maybe I do a blowout vacation this summer and you booked that, at the beginning of the year, December rolls around. You're looking at your bank account and like, oh, I spend a lot of money in the first half of this year.
It got a pare that back a little bit. I think that's certainly the case. Some of that could be going on. You think about supply chain issues, I wonder if people took that to heart earlier and did a lot of shopping earlier.
I remember Shopify came out right after the rush of Black Friday, the Thanksgiving weekend and said that from Friday to Cyber Monday was the biggest they ever had like massive blowout.
Then maybe people had been shopping before that, where we were seeing very good news on consumer spending heading into the Thanksgiving weekend. If people spent what they expected to spend for the holiday season in November, yeah, December is going to be a little slower because you're done. You spent what you planned to spend, you don't need to spend anymore.
Maybe that's feeding into this. Maybe once supply chains normalize, we get back to our old habits when we're spending. That's something else that could be playing in there. Also, even 2021 was really good. I think retail sales were up like 16% or something for the whole year. You've got something like that and a little bit of a drop in one month.
In context doesn't seem that surprising when you think about it. But yeah, a lot going on. It's hard to know for sure.
I think it's something we want to watch and maybe we keep an eye on the numbers for January and February, March, and see how the beginning of this year starts to shape up to see where we might be headed for the rest of the year.
