Consumers will spend ‘as long as they have a job’: Strategist

January’s weaker-than-expected retail sales report may be signaling fading consumer resilience. Sameer Samana, Senior Global Market Strategist at the Wells Fargo Investment Institute, joins Yahoo Finance Live to discuss why consumers have “hit a wall” .

Samana tells Yahoo Finance Live while higher interest rates didn’t immediately affect spending, the impact is emerging in areas like mortgages and auto loans. He believes this will “continue to slow the economy” and pressure consumers who’ve been resilient so far.

However, Samana notes consumers will keep spending “as long as they have a job.” To gauge the health of the consumer, he suggests investors evaluate leading economic indicators and acknowledge rising costs and rates. With recent layoffs possibly impacting labor data, he says exposure to job losses will “eventually catch up to the consumer.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

RACHELLE AKUFFO: Well, the resilient consumer might be slowing down. Out today, retail sales declining more than expected in January. To break down what risks may lie ahead for the market, we have Sameer Samana, Wells Fargo Investment Institute senior global market strategist. Thank you for joining us this morning. So, how much should we read into this print?

SAMEER SAMANA: We’ve been saying for some time that the consumer is going to hit a wall, especially after the holidays. I mean, when you look at what’s going on with the labor market, which is starting to cool, when you look at the fact that interest rates, although they didn’t have an impact right away, anytime somebody goes to refinance a mortgage or buy a new home or take out a new credit card or a new auto loan, they’re paying a much, much higher rate than they did a few years ago.

And so we think that that’s going to continue to slow the economy. And that’s probably going to put some downward pressure on the consumer, which, thus far, has been very resilient.

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BRAD SMITH: And we’ve been focused in on, of course, a lot of the different readings on the consumer. Earlier this week, it was CPI. Of course, here today, retail sales. Where, for investors, is really the better gauge of still this consumer and the resiliency, but also now the question of that resiliency as put on by the retail sales figure?

SAMEER SAMANA: Yeah, I mean, look, the consumer is going to spend as long as they have a job, right? As long as they have a job, as long as they can access income, they’re probably going to spend. I mean, that’s just how it always works historically, right? They are some of the last folks to kind of figure out there’s impending slowdown.

So I think what you need to do is look at those leading economic indicators. I think what you need to do is acknowledge how much higher interest rates are. I think you need to acknowledge how much, you know, kind of higher the costs most of us are spending just to keep our households going.

And I think from that standpoint, I think you can see that once the labor market weakens significantly, which it should as the year goes on, you can see that in some of the layoff announcements, and some of the other areas that we look at, that’s going to eventually catch up to the consumer and they’re probably going to get hit probably at the second half of this year.

RACHELLE AKUFFO: So, Sameer, obviously, a wave of economic data coming out this week. Would you say there are three particular when it comes to economic growth risks that markets are still underpricing at the moment?

SAMEER SAMANA: Yeah, I mean, look, the first one is inflation, right? I mean, the tricky part is you’re still seeing companies have quite a bit of pricing power, although it’s less than it was. You’re still seeing wages be quite a bit sticky. Unfortunately, that has a lot to do with the fact that there’s still a shortage of labor.

And then, honestly, I think it’s just, you know, the lag this time around because those interest rates, because everybody refinanced in 2020, 2021. I think that lag is a little bit longer this time. But, you know, honestly, history tells you it’s about two years from when the Fed first starts hiking rates when the economy slows, and we’re right on schedule. And I think later this year, I think those rate impacts will really show up.