People are spending less but still buying shoes

• The U.S. economy slowed, with revised downward GDP growth.
• Industrial metal prices rose due to supply constraints and strong demand.
• Consumer spending patterns varied, with some retailers cutting prices, while others saw increased sales.

The U.S. economy has definitely slowed down. After growing at an annual rate of 4.9% in Q3 2023 and 3.4% in Q4 2023, gross domestic product (GDP) growth for Q1 2024 was revised down from 1.6% to 1.3%. The revised data reflected growth in consumer spending and housing investment that was partially offset by a drop in inventory investment. Imports, which negatively impacted GDP, also increased. Consumer spending rose due to increased spending in health care and financial services, but this was partly offset by a decline in spending on consumer goods, especially motor vehicles. The decline in inventory investment was mainly due to reductions in wholesale trade and manufacturing. The market reacted somewhat negatively but not in an overblown manner. All eyes were on the Personal Consumption Expenditure (PCE) Index number (a commonly used measure of inflation that excludes food and energy costs) that came out this morning. It came in at 0.249%, below the consensus forecast of 0.255%. We’ll report on this in more detail in next week’s commentary.

Aluminum prices on the London Metal Exchange hit a two-year high due to supply constraints and increased demand from China and the U.S. This increase has been fueled by China's aggressive emission-cutting targets for smelters, leading to tighter metal capacity. China's State Council has also pledged to enforce strict capacity limits in industries like steel and alumina (synthetically produced aluminum oxide), as part of its energy conservation and carbon reduction plans for 2024-25. The transition to greener energy is driving demand for metals like copper and aluminum. China plans to control new capacity for copper smelters and alumina output, ensuring new capacity for aluminum and related materials meets high-energy-efficiency standards. The "aluminum swap scheme" will require any new smelter to be matched by the closure of an existing one. In the U.S., the economy's momentum and significant government spending have boosted demand for metals and other commodities. There are many reasons for the sudden increase in demand for most industrial metals; low investment in commodities production in recent years, leading to lower output capacity; climate change initiatives requiring higher prices for green investments; geopolitical risk hedging; and strategic restocking. Additionally, the growth of data centres, AI and defence spending have driven demand for both metals and fuels.

Is the U.S. consumer doing well? It depends on who you ask. While Walmart, Target and some grocery stores in the U.S. have reported price slashing in order to win back consumers who have left them, others are reporting vastly different stories. Dick’s Sporting Goods raised its full-year guidance, as shoppers spent more on sneakers and athletic gear. The growth came from a 2.7% increase in transactions and a 2.6% rise in average ticket values, indicating both more customers and higher spending. Foot Locker almost doubled earnings expectations, reporting a better outlook that sent its stock up by 20%. Despite overall spending cuts, people are still splurging on travel and sneakers.

Listen to this week’s podcast for further insights.