Consumer earnings and Macro Data

December 5, 2025

Today, we'll review a couple key macroeconomic datapoints and the latest batch of earnings from the consumer stocks.

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Macro Data

We got two meaningful economic datapoints this morning.  

First, PCE inflation in September was inline with expectations - +2.8% vs last year.   Second, the Univ of Michigan consumer survey said that inflation expectations are coming back down – 4.1% now versus 6.6% in May.  Both of these datapoints suggest that inflation is not getting worse.  Meanwhile, real personal spending was flat in September with the prior month.  This suggests demand is easing up.

All of this will give the Fed a clear runway to cut rates at their meeting next week.  The Fed has one weapon (interest rates) to fight two monsters (inflation and unemployment).  It has to pick one. Well, the inflation problem seems to be not getting worse.  So the Fed for now is free to attack the slowing job market.

So rate cuts are back on the table.   As a result, the market is up, and short-term interest rates are down.   The futures market is showing a 95% chance of a 0.25% cut in interest rates next week.   The key question will be: what happens after that?  For that, we’ll be pulling apart every word and mannerism of Jay Powell in his post-release press conference.

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Consumer Stock Check-In

This week, we got a large batch of earnings from retail companies.  

First, the big dogs.  Costco and Kroger.  Costco reported weaker than expected comp store sales.  Likewise, Kroger reported weakness in its low end customer.   This follows P&G’s recent commentary about weakness in the US market for its consumer products.  

Perhaps not surprisingly, the discount end of the market is doing better.  Dollar General (DG), Dollar Tree (DLTR), Ross Stores (ROST), and Five Below (FIVE) all reported stronger than expected same-store-sales growth this week.   Could it be that consumers are on the hunt for better deals these days?  

This isn’t new news to the market. But there was an interesting story this week about consumers ordering fewer pizza toppings at local pizza places.  Papa Johns (PZZA) is a publicly traded stock.  They reported earnings about a month ago.   They confirmed this trend to be true.  They saw trade down to more “medium” pizzas and weakness in “small ticket web customers” (read: lower income customers).

Stepping back, this commentary all mirrors recent commentary from McDonalds and Walmart that the lower end consumer is pulling back.  The key question?  Why?  

At a macro level, unemployment is trending higher but not spiking yet.  Wage growth (on average) is still above total inflation.  Could it be the cumulative impact of 3%ish inflation finally catching up to behavior?  Could it be a psychological hit from the government shutdown and cuts to food stamps and healthcare?  Morgan Stanely this morning suggested that the tariff impact on goods pricing is finally starting to bite.

In investment research, there’s this concept of “mosaic theory”.  A mosaic is an image created from lots of little pieces.  Think of a puzzle set or a stained glass window.  With macro economic research, it’s kind of like putting together a puzzle.  We don’t know the full image yet.  All we’ve got are all these little pieces.  And we’re trying to fit them together to form a “mosaic” of the bigger picture.   Increasingly, the little pieces are all suggesting a weaker consumer out there – particularly at the low income end of the population.