Daily Commentary

MarketMinder’s View: When indeed. For several months now, headlines have talked of a K-shaped economy where, allegedly, wealthy households are doing well and driving growth while lower-income folks are slipping. (To date, no one has told us what the K’s vertical line would be.) This piece traces the etymology, crediting a college lecturer with popularizing the term in 2020 after he saw it on Twitter. That is kinda fun. But we would appreciate it more if someone would interrogate the veracity of the basic assumption, which this piece fails to do, instead taking it at face value that only one small economic subset is doing well, with most evidence amounting to consumer surveys. We have taken this on with data before, so let us do it more qualitatively this time, because there is a basic problem with trying to parse the economy by income levels and put people into buckets: Costs of living vary nationally. Per the St. Louis Fed, the Bureau of Labor Statistics pegged the average annual pre-tax income for the top 10% of Americans as $353,318. Someone making that would have a very, very high living standard in much of the inland and southern US. But in New York, Los Angeles, San Francisco and other metro areas, they are probably pinching pennies and rationing coffee in order to afford housing. So are they the upper or lower line of the K? Fact is, the US has a much broader spectrum of income than the letter-based metaphor implies, and those incomes’ mileage will vary depending on ZIP code. You could have low-income Baby Boomers spending like it is going out of style while high-income Millennials live like post-grads. And a whole lot in between. Most importantly, this is all a sociological issue, not the sort of thing markets get bogged down with.

MarketMinder’s View: To us, this looks less like a crisis and more like a crawl toward clarity. Yes, France failed to pass next year’s budget, extending the standoff that made Prime Minister Sébastien Lecornu temporarily unemployed. No party has a majority in the National Assembly, and Lecornu couldn’t muster enough consensus on taxation and spending. Right-leaning parties wouldn’t bless more tax hikes to raise revenue and tackle the deficit, while left-leaning groups wouldn’t ok spending cuts without a wealth tax. But the result looks to be that they will simply kick the can, rolling 2025’s budget into 2026 and thus preventing a government shutdown and forestalling a snap election or collapsed government. The article notes this limits deficit reduction progress, but that is a political issue, driven by Brussels’ arbitrary limits, and not an economic one. France’s economy and markets have done fine alongside the status quo, which isn’t breaking the bank. 

MarketMinder’s View: This piece basically debunks itself, which is fun. UK retail sales volumes fell -0.1% m/m in November, missing expectations for a 0.4% rise and causing a lot of gloom about holiday discounts and cheer failing to lift retail spending. Only: “Supermarket sales fell for the fourth consecutive month, down 0.5% month on month, while online jewellery sales also suffered. Non-food stores – the total of department stores, clothing, household and other non-food retailers – rose 1% month on month. Department stores, footwear and leather goods retailers reported an increase in sales.” Sooooooo … people pulled back on groceries while indulging in a lot of holiday shopping? Seems to us things went largely fine in terms of discretionary goods. Note, too, this all happened against a backdrop of Budget uncertainty, with Treasury leaks and rumors rattling Brits until the Budget’s November 26 debut. We aren’t saying the UK economy is firing on all cylinders, but this seems like another example of downplaying a report that is just kinda meh. For more, see Wednesday’s commentary, “UK Inflation Cools More Than Expected … Raising Fears?”