← The Important Part: Investing with Liz Thomas
The Important Part: Investing with Liz Thomas
The Spending Paradox: Why Americans Are Still Opening Their Wallets
00:37:19
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- [00:00]
A
I think there's a lot to kind of unpack in terms of what consumers say and how they express concerns and fears versus their actual ability to spend.
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B
Hi there. I'm Liz Thomas, head of investment strategy at SoFi. And this is the important part. Consumer sentiment is weak. People are not feeling great about the economy.
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A
And that level shock was alarming for a lot of consumers because they were used to spending a certain amount when they walked into the grocery store, yet
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B
somehow they're still spending a lot of money.
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A
The growth rate is just. It's literally like a hockey stick.
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B
What's actually happening with the American consumer today and what does it mean for corporations, for markets, and for your portfolio? Our guest today is Michelle Meyer. She is chief economist at MasterCard and head of the MasterCard Economics Institute where she analyzes real time consumer spending across the economy. Michelle, welcome to the show.
- [00:58]
A
Thank you, Liz. It's a pleasure to be here.
- [01:00]
B
Before we get into it, nothing in this episode should be treated as a recommendation from SoFi. And this is not investment advice. Okay, so consumer sentiment as measured by the University of Michigan is at record lows. But it seems like everybody still wants to go out to eat. Everybody's still spending on some stuff. Everybody's still traveling. What, what gives? Like, why such a big disconnect?
- [01:25]
A
Well, it's actually quite interesting. We've seen that disconnect now for the last several years. So I think we have to be really careful about how much weight we put on the sentiment surveys. I think it's helpful from a direction perspective. If sentiment is rising or falling, it tells us some information. But the outright level isn't as helpful because that outright level has been close to recessionary levels. And we have seen very strong consumer spending and a very strong overall economic environment in the last few years. Growth growing above the underlying potential growth rate of the economy. So I think there's a lot to kind of unpack in terms of what consumers say and how they express concerns and fears versus their actual ability to spend. So, yes, there's concerns, there's a lot of scary headlines out there. There's a lot of unknowns. But consumers have purchasing power and they're utilizing that. And I think a lot of that reflects the fact that we still have a pretty steady and frankly, healthy labor market.
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B
Yeah, we do. And actually the labor data has gotten even better in the last couple months. I've been saying for a long time that consumer will keep spending as long as the consumer is employed.
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A
Yes.
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B
And it appears that everybody is still or at least many people are still employed. It's been more difficult to move around, perhaps, and more difficult to find a new job, if you're looking for one. But for the most part, the labor market has not cracked as everybody feared. So do you think people are actually financially stressed, or are we just talking about the possibility of people being stressed? Because inflation is high, oil is high, so gas prices have increased. Is there actually stress, though?
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A
Well, I think there's affordability concerns. When you think about the cost of shelter. Right. Homeownership has been, you know, it's been hard to reach for a lot of households, given the high price of houses, how much it's increased relative even to income growth. So there's certainly a narrative out there that will really resonate in terms of some of the desires that are just not able to access at the moment. But I think if you take a step back and you look at the aggregate consumer and the aggregate household balance sheet, the balance sheet is strong. Right. The debt service, the debt service ratio is still pretty low. When you look at the Federal Reserve data, if you think about the amount of net worth that has been created, it's tremendous. Now, it's not even, of course, right. We're talking about on aggregate, but there's been a lot of wealth creation, and there hasn't been that much growth in liabilities relative to that wealth that's been created. And then on top of that, as we talked about, we have an unemployment rate of 4.3%. So wage growth is still running at a pretty healthy clip. Now, the question is, with energy prices increasing, could we still see positive real wages? And last month's data showed that that's in question. Now, if energy prices continue to rise, it could at least temporarily erode some of that wage growth that consumers have been relying on.
- [04:24]
B
Yeah. And. Well, and one of the things that I think people are feeling too, is that if you look over a period of years, so since let's call it 2022, when we had the last peak in inflation, 9.1%, it hit in June of 2022. And then if you look at the growth in some of those necessary items, so things like food, energy, transportation, the growth in those inflationary growth has outpaced wage growth. And in some categories, it's much more than others. There actually energy was one of the places where it hadn't outpaced. And now here we are. It was the last. It was sort of the last man standing. It was like, okay, but. But energy prices were still low. So that Helped a lot. And now we've gotten to the point where they're not so low anymore. Plus, food inflation still feels high. We've got transportation cost, especially with airfares, rising, still quite high. So I think that's maybe the tug and pull that consumers are feeling, that we don't really have a choice. We have to buy food and energy on a daily basis. And transportation, in a lot of ways, you have to purchase, too. You don't necessarily have to go on that spring break trip, but you have to get to work, you have to purchase public transportation, all of those things. So I think there's the stress that's psychological. Would you agree with that?
- [05:36]
A
Well, I think this is also a story of levels versus growth rates. So when you consider where we were prior to the pandemic, 2019, as a baseline, before we had all of these inflationary cycles that hit from a variety of reasons. There was very, very low inflation for a period of time. It was a disinflationary environment. And then all of a sudden you had this big shock, higher in prices across the board following the pandemic. That was the 2022 episode. Then you start to see this continued kind of percolation of prices after the tariffs were put in place. And that level shock was alar for a lot of consumers because they were used to spending a certain amount when they walked into the grocery store, they were used to spend allocating a certain amount of their budget to buy a car. And that equation changed, and it felt very sudden. But the equation across the board changed. Wage levels did jump. They jumped up as well. Asset prices jumped up. It was the overall economy that was inflating at once. I think what's different today relative to 2022 is that it's much more targeted. Yes, we are seeing energy price increases, but you're not seeing that same level of inflation elsewhere. In fact, a lot of categories are seeing disinflation or even deflation. So that's helpful for consumers. And it makes it different in the 2022 episode, where it felt like this sudden big shock in how much they had to spend for the items they were used to spending a very different amount for.
- [06:57]
B
You mentioned that consumers have purchasing power. So let's dig into that a little bit. I want to talk about purchasing power for consumers and pricing power for companies. Because back in 2022, and let's call it the year that followed, I think it was explainable to a lot of consumers that prices were rising. They didn't like it. I'm not saying they were celebrating it, but it was explainable because we all knew that inflation had risen. And then you were seeing things like, you know, the cocktail at your favorite restaurant went up by a dollar or two and whatever else, maybe the whole menu did. Every appetizer went up by a dol too. Yeah, but people knew and it was happening everywhere. Cereal boxes, right, Shrinkflation, all the things that happened at that time. It was frustrating. But companies were able to pass those costs through pretty easily, even consumer staples companies. I remember watching the market for consumer staples companies go up over and over and over again and it's like, well, you know, certain these companies haven't changed their products. It's just that they've been able to pass the pricing through. So where are we today on that and what do you mean by consumers have purchasing power?
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A
So two answers to that question. First, in terms of consumer purchasing power, the power is just about the ability to pay. Then there's a question about their willingness to pay. And that speaks to the point you made around the ability for companies and retailers to pass on higher prices. I think we are in again a different environment than in 2022. In 2022 it was across the board, inflation, everything was shocked. And consumers had a lot of liquidity right from stimulus, from excess savings, from a very hot Labor Market in 2022 with a ton of turnover that was very favorable and positive in terms of finding new opportunities. But it's different now. So I think consumers, they're past that environment and they are now looking for the best item at the best price and they are demanding it and they are succeeding. And that is pretty clear in the CPI data as well. For a lot of goods, there's very low inflationary rates even coming off of the tariffs, which, you know, the expectation was that that would be shared a lot more broadly with consumers, that we would see much more broad based inflation in an environment where the effective tariff rate got as high as it did and it really didn't transpire, you know, as pockets, certain categories, but it wasn't across the board. So I think companies are a lot more sensitive to how much they pass on prices because they see the response from consumers, which is if it's not a necessity and it and prices have increased as much, I may opt to buy something else where I can get more value.
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B
So that tells me if we play that through a little bit, you've got consumers doing a good job of controlling their costs by shopping around, by choosing what they want, where they might want to get it from all of that and maybe even substituting in certain places, then companies don't have as much pricing power any longer to pass everything through. Which tells me take it another step further. Competition among companies probably rises and maybe competition on pricing. So then if we keep carrying that through, does that mean margins contract?
- [10:16]
A
Well, I think the point around competition is an important one and I think a lot of that speaks to the technological innovation that's out there. Part of the reason that consumers have this ability to be nimble, to be savvy, is because they have these tools in front of them. There's a very sharp increase in E commerce spending and it's continued. It wasn't just a pandemic story, of course, that jolted the amount of E commerce that was out there, but it has continued, very much continued and spread across different sectors. The ability to search competitively right away. So you no longer have a situation where consumers walk into their local store and their price takers, they have to accept whatever the price is for that item. They can determine if there's a better option and how quickly it can get to them. So they're constantly trying to figure off, figure out these trade offs. And I think that gives them a lot of power. And I think in a world of AI that is becoming even more clear and consumers are going to have a lot more power and reduce friction, what
- [11:15]
B
would you see on the MasterCard side that would start to concern you? What would the data show you on your side that you'd say, oh, it's happening, people are actually pulling back, people are actually slowing down. What, what kind of indicators do you have?
- [11:31]
A
Yeah, I mean, so when we've seen historically prior energy price shocks, what the data will show is that durable good spending will get hit first. So the extent to which energy prices remain high for an extended period, if that starts to translate in our data where you see a real shift, not just a little blip, but like a proper shift down in terms of spending on these bigger ticket items.
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B
So an extended period of time and bigger ticket items, what do you mean by that? Like washing, washing machines, your dishwashers. So redoing a kitchen, things like that. Cars.
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A
Okay, exactly. Your big ticket durable items that either are energy sensitive explicitly or they just require a much larger investment, potentially leverage, you know, taking out a loan in order to service it and something that consumers are uncomfortable about their finances, they may look to defer those purchases. So that would be an indication that consumers are under a bit more stress.
- [12:33]
B
And is that like if you saw that pullback for how long? When you said it's not just a blip, what would make it not just a blip?
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A
I mean, again, going to just what the models would suggest. An energy price shock is one where lasts three months and it extends the prior three year average is typically how you define a shock variable.
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B
Okay.
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A
So it would. We're approaching those periods of time. Right. Like we're getting closer to that three months. But then again, you'd have to see consumers actually change their behavior for quite a while as well to understand that it's a real adjustment and it's not happening. We're not seeing that. We are seeing remarkably steady spending, resilient spending.
- [13:15]
B
Yeah, well, and I'm, I wonder if, if any of it is leftover habits, new habits that we made post pandemic. So we came out of the pandemic and, and you know, people had, had moved a lot. So new houses, probably more durable goods spending because of the new house. And then we went through this revenge spending period where everybody wanted to go back out. You could, you could go to concerts again, you could go to sporting events, you could go to restaurants, and everybody wanted to do it all the time. And it was like, I don't care how much it costs. I have been deprived of this for however long. So now I just, I'm going to do that. And it seems like services spending has continued. Is it. Do you think that's left over from the pandemic still?
- [13:59]
A
I think it speaks to how consumers are thinking about value and what they're able and willing to pay for. So for some of the staples, that's where all the choices are, and that's where you probably just want potentially the lowest price. If you're shopping for toilet paper or tissues or whatever it may be.
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B
Yeah.
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A
But if you're talking about the experience of going to a concert or seeing your favorite artists or going to a sporting event, you're probably a little bit less price sensitive because that's a once in a lifetime opportunity. And that is a mentality that I do think has continued from the pandemic days. Similarly for travel, I mean, we are seeing the travel economy continue. It's just reorienting. In the world that we live in, given geopolitical forces, given the cost of travel, consumers are looking for the best value that also meets with what their priorities are of where they want to go and how they want to use their budget.
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B
Yeah, that's been a surprise to me because airfare has gone up so much and people just continue to purchase it, it's like it doesn't matter, I'm still going.
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A
Right. Or they may go to different locations.
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B
That's right.
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A
So that's one of the things that
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B
we've observed is like less international travel
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A
or international, but not necessarily the big tourist locations that may cost the most that have the highest hotel spending.
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B
Like Disney.
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A
Maybe not Disney. It's very expensive to go to Disney. We went two years ago. A fortune.
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B
Yeah.
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A
But even within Europe. So one of the things that our economists that are sit in Europe have observed is it shift a in the timing of travel. So the shoulder season has increased. You're not seeing the same amount of travel in the typical peak moments that things cost the most. So people will travel at a different time, but also going to many different locations that are kind of off the beaten path that are considered these kind of destination dupes. They've increased considerably in terms of tourism spending. And we see it clearly in our data.
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B
Huh. Destination dupes? Yeah, I don't think I've ever heard that term. That's a new one. Okay, so where are you seeing spending still the strongest? Are there specific categories that you're still seeing the strongest? And then where are you seeing weakness?
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A
So a category that has stood out to us starting around the holiday season is apparel spending. So we had. It was one of the strongest categories during the last holiday season and it's remained pretty robust. There's been a little bit of a moderation, but really mild from what was very, very strong growth during the holidays. And that's interesting. So we'll see if that persists. It could be the influencer economy that are bringing, you know, some of these new styles, new wardrobe right front and center.
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B
Are you able to see how granular does it get? Are you able to see, are people trading down, are they still buying the lululeggings or are they buying something less expensive? Is there a reason that some of the discount stores have done better than some of the non discount stores?
- [16:53]
A
Yeah, we absolutely could see across different broad categories. Whether it's sporting gear or it's footwear or you know, handbags. Like we have the ability to cut it by these, what's called MCC codes, merchant classification codes, which is basically like an industry aggregation. There hasn't been a, you know, decisive shift. I would say in general, footwear is not driving the gains. Interesting. It's more of the, the typical retail standard apparel names that are driving it. It's a little bit less of the accessories.
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B
Okay. So the sneaker thing is, is dying
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that that wasn't the incremental driver over the last, you know, call it six to eight months relative to some of
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the other names, the return rates. Yeah, so talk about that for a minute.
- [17:39]
A
So I think another part of the story of making and allowing consumers to be flexible and to influence what they buy, when they buy at the best price is the ability to return. There's seamless returns, so we can very clearly understand the share of transactions that are returns versus first time purchases. And there obviously is an upward trend. And that upward trend, particularly for apparel, is all E Commerce. So in store it's pretty steady. The return rate, it really hasn't moved very much over the last few years. But that E Commerce return rate has certainly increased, particularly around the beginning of the year after the holiday season, January and February, you, you certainly see that, that return action. So on the one hand, obviously that creates a little more complication for retailers that have to manage through that, but it also shows that consumers want to have those choices and those options where they can buy. They could decide they can shop for different items. I mean, I don't know about you personally, but for me, when I'm going to an event, I will buy multiple options. They will sit in my house for a little while and then I will figure out what I want to purchase, what I want to wear and return the rest.
- [18:44]
B
We've talked a little bit about where consumers would pull back and services spending seems like it's holding up, but you're still seeing retail spending doing well, apparel spending doing well. Have you seen a drawback in durable goods spending?
- [19:01]
A
So on a trend, we have not seen a shift from the trend, but on a trend basis, spending on home improvements, on furniture, it has been one of the weaker categories.
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B
Okay.
- [19:11]
A
And that speaks to the lack of turnover of the housing stock to the point that you made a lot of that work was done coming out of the pandemic when there was so much movement in terms of housing and at worlds where interest rates are higher, it's just, it's harder, it's harder to see that type of turnover. Um, cause again, homeownership is just not as accessible.
- [19:31]
B
Yeah. Does Gen Z spend differently than other generations?
- [19:38]
A
This is a big debate and we, we don't have great perspective on it because we can't obviously see by age. We can look at different locations, different zip codes and try to understand if it's like a college town versus a retirement community and how spending is different. But the, what I keep going back to, is it a life cycle story or is there actually something discreetly different about this generation? Because we had a lot of the same conversations around millennials. Millennials are just a very different cohort, maybe, but also they're just moving through the life cycle, and they're going to continue to spend. So there was a few millennials who never buy homes. They've bought homes. They've done the typical thing. They've done maybe later or a little bit different in terms of how some of that spending has occurred. So I think one of the big differences today is just around the use of technology, the desire to have as much flexibility as much information and to purchase online.
- [20:33]
B
I wonder. I mean, I think your point about the life cycle is important because I'm a geriatric millennial, evidently the first one ever born or something like that. So when you look at just the timing of when people buy a house, create a family, do all of that stuff, if it's happening later, what are they doing earlier? Are they living with their parents and spending money on concerts and services and things like that, and delaying some of that larger spending, but still propping up the economy with the other stuff? So that's why we think, oh, they like this more. But maybe it's just that they can't afford to move out yet, or they haven't gotten the job to move out
- [21:18]
A
yet, or they're okay spending their. Instead of on rent, spending on travel and concerts and other priorities. So I think there is. It's always just. It's a choice, it's decision making, and it's what, you know, consumers are looking to spend their resources and their budget on.
- [21:39]
B
What kind of differences are you seeing across the country? You mentioned zip codes, but are there big differences? West Coast, East Coast, North, South?
- [21:46]
A
The Southeast has been an outperformer for some time in spending. Okay, yeah. So Carolina services, Florida. Yeah, pretty much across the board. There's been faster spending growth. The Mountain states as well. We've seen some pretty healthy spending growth that really resonated after the pandemic, but it's held. So we've seen some. Some growth there. The Midwest, Northeast, it's a little bit more mixed, but has lagged a little bit relative to those other markets. And the west is kind of in the middle.
- [22:16]
B
And do you think that's just population migration?
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A
It does correlate very closely with both job growth and population, which are obviously correlated with one another. So I do think it has to do with where business creation is happening, where people are moving to and hence the jobs that are being created and therefore the income that supports future spending. And it's a feedback loop because the more that happens, more consumer spend and the more businesses that are created and it creates this really strong momentum in these regions.
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B
How do you think AI impacts spending? Have you seen it yet?
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A
We have, we've seen a little bit of a shift in behavior as a result of AI. So one of the studies that we're been in the process of pursuing is to look at a matched cohort, one cohort who has AI subscriptions, the other cohort that does not otherwise similar characteristics between the two to see how the wallet share is different. And we looked at this particularly to understand travel and travel decisions where AI is actively utilized and could be continuously pursued in terms of enhancing and changing the travel experience. So the first observation is the AI cohort has a larger wallet share towards travel. Again, it could be because AI facilitates that. It could also just be because even though we're matching the sample, trying our best to match characteristics, it could still skew younger. You know, there's other reasons in terms of that, that that output. But in a fascinating study from that is, we can see that the, by different destinations, the share of tourism spending is for AI subscribers versus non AI subscribers. So you can kind of get a sense of these like AI hotspots. Okay. These off the beaten path type locations.
- [24:05]
B
Like these are people subscribing to chat GPT. Okay.
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A
Any type of AI platform that's not a, you know, big hyperscaler. So something that's really discreet for AI. So we looked at this.
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B
Subscribers are concentrated in certain areas. Okay.
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A
And some of that, the, the city is, I mean I, I wasn't familiar, I am now familiar and have some really great new travel ideas. But, but it's fascinating. So you know, you have small cities throughout, obviously the coastal areas there's for culture, it's food. All of them are listed in the report if you're curious for some travel ideas. But it was, it was, it was cool to see that play out.
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B
Yeah. Well, and I like.
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A
Have you heard of Leipzig in Germany?
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B
No. You do now, Leipzig?
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A
Yeah. It's a. One third of tourism spending is from AI subscribers and it's considered kind of the old Berlin has a great music scene, huh? Yeah.
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B
Well, I'm, I'm asking too and I'm personally interested because we just went to Costa Rica as a family for spring break and we literally had chat plan our vacation.
- [25:10]
A
Yes.
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B
I mean we still had to book it of course, but we, we gave it all of the prompts here's what we're looking for. We're a family of four. We're, you know, like everybody's ages, interests, blah, blah, blah. And it spit back at us, you know, here are some options. It even gave us hotels. And why, why we should go to this particular region of Costa Rica. Everything like, should we rent a car or not? And we followed it pretty much to a T. I mean, it gave options, but it was wild to figure that out with the help of an assistant like that. And so easy. And then all of it, sure enough, our money went there. So I don't know how that's going to work for companies going forward because somebody could have, somebody extra could have made money on that. I want to talk about some of the shifts in consumer behavior that I think are more thematic. So things like people spending more money on experiences, which I think we've covered. There's also a big health and wellness trend.
- [26:07]
A
Yes.
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B
And, you know, we've got wearables, we've got GLP1s, we've got supplements. I mean, you name it, everybody's into it. It started as, you know, only people who were very athletic were interested in that sort of thing. And now it's everywhere. It is ubiquitous. So talk about the spending shifts that you've seen, if any, on health and wellness and anything that you can share there, because I find it fascinating.
- [26:35]
A
Oh, my gosh. We, we looked into this. We started exploring about a year ago, and we, it became, it was growing and it was growing fast, and we see it very clearly. So we have, we have two measures that we look at. One is around these wearables, as you talked about. I'm one of them.
- [26:51]
B
Yep. So am I. Yep.
- [26:53]
A
And I love it. It should, you know, it, it helps to optimize to the extent that you. That we can listen to it. But, but the growth in wearables and the technology around health has grown tremendously. So I don't have the stats at the top of my head, but the growth rate is just, it's, it's. It's literally like a hockey stick relative to the comparative sample, which is just gyms and the kind of typical health experiences that we had before. So the growth rates are very, very large. Obviously, the share of the market is still smaller, but it's growing at an unbelievable pace. And it's broadening as well throughout the country, too, which is really interesting to see that.
- [27:34]
B
So do you see a big benefit to other types of companies as that theme grows and maybe as AI grows, like into Your crystal ball. Right. What does spending look like? And I'm trying to think of this from an investor's perspective. Now, if I'm trying get ahead of a consumer trend, I want to buy a handful of companies today. What are those companies? What types of companies?
- [27:56]
A
Yeah, it goes back to consumers that have information and can make these choices. So if you're looking to optimize in whatever way that is, either you're optimizing your budget, you're optimizing your health, your wellness, you now have the information to do it, you have the data to do it, and you can sort through how to best achieve that. So you're walking into a store and you're saying, well, is this important to me or is that important to me? And where do I get the best price? So it's about value and it's about pricing. I think these things have to come together because people will have, will be somewhat price insensitive for certain things when it comes to their health. Perhaps when it comes to these once in a lifetime experiences, they're willing to spend, but when it comes to an everyday item, they may just want the best price.
- [28:38]
B
Yeah, I'm, I'm price insensitive when it comes to health and wellness. I, and, and I sort of have that mentality too of like, this is going to change my life. So I think, you know, first of all, I'm not the only person thinking things like that, feeling things like that.
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A
And you're getting information.
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B
Yes.
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A
Because it's all out there.
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B
But guess where I'm getting my information, Claude. And so then it's like, yeah, so what does that look like from an opportunity perspective as an investor? Right. Am I, am I thinking that hospitals and clinics are even going to be a thing as much as they are today? Because now we can ask this thing on our phone all these questions that we would normally ask a primary care provider.
- [29:19]
A
We also have an aging population.
- [29:21]
B
True.
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A
Which supports the healthcare industry.
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B
Yeah.
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A
And I think it just makes them smarter and perhaps more efficient and easier to respond to some of these requests.
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B
Yeah.
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A
So it depends on how the technology is utilized and leveraged.
- [29:36]
B
What about food and beverage spending? How do you see those trends moving?
- [29:42]
A
So, I mean, it depends on food. Food is food at home, food away from home. Right. In terms of what you're eating for groceries and what you're going out for in terms of those experiences. I think that there's been greater inflation recently at restaurants. Right. You have the initial jump higher in inflation at grocery stores coming out of the Pandemic, a little bit of that during the trade war. But generally speaking, I think it's the experience that consumers are willing to spend a bit more for and have that at restaurants. Whereas the food that you're eating at home, again, you have a lot more choices. You can go to different supermarkets, you can find ways to get delivery of certain items if it's cheaper to do that. So there's a little more wiggle room that I think allows for a bit more downward pricing pressure. So. And then there's the decisions you make as a consumer as well. Right. In the sense of, what do you want to buy organic? Where do you want to go to specialty stores to have something really specific, and that matters for you and for your family, versus what are you gonna buy in bulk? Because you just need it and you just want the lowest price.
- [30:46]
B
Yeah, yeah. I think some of the trends as far as food and beverage spending are gonna shift dramatically in the next 10 years. I think even just pulling back on things like alcohol. Right. I think that's changing a lot.
- [31:03]
A
Yeah, that's very clear.
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B
What takes the place of that? Maybe nothing takes the place of that. But then does that change the profit machine for certain beverage companies? And what. What do those profits then get redeployed into? Right. Or what does that spending get redeployed into? And what does the company focus on for? All right, we're not selling as much beer anymore. So what should we be selling? Is it energy drinks? Is it protein drinks? Is it something else entirely? Should we even be in this business anymore? Yeah, I don't know what that looks like.
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A
And I think that shift is underway. When you think about the electrolyte drinks, the probiotic drinks that are out there, and it's a lot of new businesses that are creating this, too. I mean, that's been. Another fascinating theme that we've seen over the last few years is just this incredible amount of business formation. If you look at the Census Bureau data on applications for new businesses there, it's been elevated and it's been. And it's rising. Particularly in the last several months, you've seen this big gain. And again, a lot of that does go back to. The barriers of creating a business are a little bit lower in a world where you can start up a website very quickly.
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B
Yeah.
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A
Using all these new tools.
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B
Yeah. What? Did I not ask you that? I should have asked you that. MasterCard has a good lens into.
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A
I mean, I think the global picture as well. One of the. I think really fascinating parts of sitting in the Economics Institute is that we can see spending trends across the globe and compare them and understand how consumers are evolving and shifting and what, where those similar trends are and where there's differences. And you know, I think the US consumer has stood out as being one of the more persistent in terms of spending throughout this whole period of time and also the most flexible. But you are seeing similar dynamics in other countries as well.
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B
Like where.
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A
So throughout Europe you're seeing, you know, this shift towards more discretionary spending, a little bit more choice. Right. In the sense of even throughout Europe, where people are choosing to travel again, some of these new, newer locations, different times, Europeans are choosing to travel. Europeans, yeah. Okay. Yeah. So, you know, you're seeing that change in consumer behavior. I think it's really prevalent in the U.S. maybe it's a little bit faster, but there's a lot of parallels in other markets.
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B
Do you have a lens into emerging markets?
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A
Yeah.
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B
Okay. So the trend, or I guess the proposition has been that the rising middle class, the emergence of the middle class and emerging markets was going to drive all this new consumption, even to things like protein. As people make more money and they become more affluent, they can buy more protein and less grains. So there was going to be all this demand for protein and fertilizer and so on and so forth. Do you see that happening? Is there actually a trend towards a growing middle class in those emerging market countries?
- [33:58]
A
I think there is in certain markets. So parts of Southeast Asia. I think that is pretty clear, especially given how much more supply chains have shifted into the market. They're seeing opportunities in terms of greater manufacturing. Ultimately that translates to perhaps a little bit stronger of a domestic economy and a services led economy, which is, that's where ultimately some of the goal is in terms of not just relying on exports, but also creating more strong strength in the domestic consumer. So I do think there's a narrative there, but I also think the implications could be different. Yes, they change what they eat. They can access different, you know, food sources. But it's also how they spend on technology. Right. That is such a top priority in a lot of these countries that are emerging and growing fast. It's how do you do that in the most savvy way. And for that it's this kind of race to embrace and to bring on new technologies faster and smarter ways of doing things.
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B
Technology is everything. Thank you, Michelle for coming on and again, so lovely to meet you in person and have a conversation in person and share all of your great data with us.
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A
My pleasure. Happy to be.
- [35:16]
B
What a great episode talking about the consumer. And as we know, consumer spending is one of the most, if not the most important thing to the US economy. So hearing about those trends was really important. Couple big takeaways that I remember from Michelle are that first and foremost, consumers still have purchasing power. They are making informed choices. They have so much more information at their fingertips, and what it sounds like this means is that companies may not have as much pricing power, so we have to see how that changes some of the strategies going forward. Second big takeaway, consumers are still spending on retail and apparel experiences and travel. And one of the ways that AI is influencing spending is particularly on travel. We heard about destination dupes, which was a new term and something fun to just think about as we go forward. And then lastly, I talked to Michelle about what she would watch in the MasterCard data that tells her if consumers really were starting to hurt or pull back on their spending. And you'd be watching something like durable goods spending. Now, there's been a little bit of a shift lately, but really nothing concerning. So this was an upbeat message about the consumer, which I love and I'm so glad to have been able to share it with everybody. We look forward to bringing you the next episode next week. For more from me, read my weekly column in SoFi's newsletter on the money and on the SoFi website, or follow me on X at Liz Thomas Strap. Follow the Important Part wherever you get your podcasts. The Important Part is produced by SoFi in partnership with Sony. Podcasts Investments are not FDIC insured, are
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A
not bank guaranteed, and may lose value.
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B
Elizabeth Thomas is a registered representative of SoFi securities and and a registered investment advisor with SoFi Wealth.
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A
This podcast is brought to you by SoFi Invest, which is a trade name used by SoFi Wealth LLC and SoFi Securities LLC. This podcast is for informational purposes only. Investing involves risk.