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What’s going on here?

The Federal Reserve’s (the Fed) latest beige book revealed that the retail industry is like, totally fetch right now.

What does this mean?

US retail sales were 5.6% higher this December than last, pulled up by shoppers spending big on clothing and online stores – presumably making the most of emergency next-day deliveries over the holidays. That meant retail sales increased more than inflation, an indicator that the economy could be headed toward the ideal “soft landing” outcome, where inflation is tamed without sparking a recession. So even though the manufacturing sector had its weakest year since 2020, the combination of easing inflation, robust spending, and a calmer job market should keep the economy on balance.

Why should I care?

For markets: Americans are doing fine on their own.

The Fed is now more likely to keep interest rates where they are for the fourth time in a row at the next meeting. See, those hardy retail sales show that Americans can still afford to spend money and keep the economy moving, reducing the need for any imminent rate cuts. But with inflation falling faster than predicted, the committee could start penciling this year’s rate cuts – three, as forecast in December – into the diary.

The bigger picture: Confessions Of A Shopaholic, the sequel.

A soft landing would earn the US a pat on the back, it’s true. But once the handshakes are finished, attention will slide toward the government’s massive debt pile. Between October and December, the government is expected to have added just under $510 billion to the existing $31 trillion of national debt. Now, some of that will be sold as treasury bonds, but America’s burgeoning debt pile could put off investors. And while the government spent over $650 billion on just interest last year, creditors could well demand more this year, swiping cash that could otherwise be used to help everyday Americans.

What’s going on here?

Tesla trimmed the price of two electric vehicle (EV) models, so now Europeans can risk an automated accident for less.

What does this mean?

The fuzzy feeling that comes with saving the world isn’t cheap. EVs often cost more than traditional fume-throwers, especially now government incentives that made them cheaper have largely wrapped up. It follows, then, that 3.8% fewer new EVs were registered in Europe this December than last. So you can’t blame Tesla for trying to buck the trend: the world’s second-biggest EV maker – recently overtaken by Chinese BYD – made two Model Y versions some €5,000 ($5,400) cheaper in the region. That made Tesla stand out against the competition, pushing down shares of rivals Volkswagen, Stellantis, Renault, and BMW. But slipping sales will have knees shaking all along the supply chain, too, with companies like battery suppliers and makers seeing their prospects shrink.

Why should I care?

For markets: Enjoy the January sales.

Tesla reduced prices over and over in China last year, prompting rivals BYD, NIO, Li Auto, and Xpeng to do the same. After all, in such a crowded and competitive market, any shrewd move from a competitor could compromise a company’s bottom line – especially because EVs aren’t the sort of thing you buy a few of. So if you’re a European in the market for an electric hot rod, you might bag a sale by holding out a little bit longer.

The bigger picture: Cover your mouth.

China’s yawns could be contagious this year. The Magnificent Seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla – lent investors their magic touch over the last few years, partly thanks to China making up 19% of Apple’s revenue and 22% of Tesla’s earnings in the first nine months of the year. But with the Chinese economy stumbling and population slipping, companies that once relied on the market may need to find a replacement, stat.