The US Federal Reserve has raised interest rates by 225 basis points so far this year, with more potential. One indicator that is likely to stand out in the Fed’s thinking as it weighs the size of further price increases is consumer strength. It plays an important role in Fed decision-making, but the data paints a mixed – and sometimes confusing – picture. Consumer Health Indicators Bank of America believes the unemployment rate is the “most important” measure of consumer health. In a note dated July 27, analyst Mihir Bhatia said that consumers will likely complete their monthly card payments and loans as long as they remain employed. The US added 528,000 new jobs in July as the unemployment rate fell to a pre-pandemic low of 3.5%, suggesting the labor market is still on a strong track. Wage growth also edged higher, as average hourly earnings rose 0.5% month-on-month and 5.2% year-over-year. Another closely watched indicator is consumer spending, which accounts for more than two-thirds of US economic activity. Consumer spending rose more than expected in June, with the personal consumption expenditures price index up 1.0% from a month ago – the biggest monthly increase since February 1981. ‘One increased risks’ But Wells Fargo warns that consumers are digging into savings to keep their spending going, as incomes haven’t kept pace with the fastest rate of price growth since the early 1980s. Well Fargo senior economist Tim Quinlan said on July 29. In an August 2 note, Barclays analyst Terence Malone noted the pace of spending on goods and services in June. , from both high- and low-income consumers. He added that consumer sentiment is at a decade low, as measured by the University of Michigan’s consumer sentiment index – considered by many to be a reliable barometer of consumer confidence. consumption in the economy. Goldman Sachs also sees “some increased risk”, as lower consumer confidence, wealth erosion and inflation impact consumers’ willingness to continue spending by save. Read more Wall Street banks love growth stocks. Here are top picks from Goldman and beyond. This small-cap fund has outperformed the S&P 500 index this year. Here are the stocks that the company owns BlackRock: The era of steady growth is over, but here’s how investors can prepare for it Meanwhile, some names report second-quarter earnings The age of consumption further fuels the debate around the power of consumers. Bank of America notes that while the overall message from major pure card issuers like American Express is one of continued strong consumer balance sheets, some consumer companies like Walmart and Bath & Body Works paints a picture of a pressured consumer and accordingly downgrades their 2022 outlook. How to Position With many market observers warning of downside risks ahead, how should investors position themselves in this environment? Barclays has compiled a list of stocks that it thinks can thrive even as spending eases. The list includes Archer Daniels Midland, McDonald’s, Coca-Cola, PepsiCo, fertilizer company Nutrien and online travel platform Expedia. Morgan Stanley said it has seen early signs of consumers reducing purchases such as cigarettes, groceries and fast food. It expects this to “rapidly expand” to other categories if inflationary pressures on consumer spending continue. Potential beneficiaries of this change would include discount retailers TJX and Ross Stores, soft drink company Molson Coors Beverage, as well as fast food chain Yum! Brand and Domino’s Pizza. Goldman Sachs sees some opportunities in high-quality, defensive discretionary names as it sees consumer spending improve next year. Its top picks include Target and Chipotle Mexican Grill.