Mastercard Economics Institute Chief U.S. Economist Michelle Meyer joins Yahoo Finance Live to discuss the latest consumer trends.

Video Transcript

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SEANA SMITH: Well, ahead of that economic data and the earnings reports later this week, Mastercard releasing its January SpendingPulse report, and the consumer once again proving to be pretty resilient. US retail sales last month, ex-autos jumping 8.8% from a year ago. It's important to note that those numbers do not account for inflation.

For more on this, we want to bring in Michelle Meyer, Mastercard Economics Institute Chief US Economist. Michelle, it's great to see you again. So that headline number, 8.8% jump, restaurant spending jumped about 24%. When you're taking into account the consumer right now, looks pretty stable from our view. What are you seeing? And what's driving that spending?

MICHELLE MEYER: Well, you're absolutely right. I mean, it is an impressive increase in spending, particularly for some categories like restaurants, like you mentioned, or broadly experience-based spending. So there are some differences in terms of how consumers are spending, some choices that they're undertaking in terms of their basket of spend, but they are still out there spending.

And the question is, why, and how? And a lot of that speaks to the health of the labor market. If you look at the last jobs report, over 500,000 jobs created. Wage growth is continuing, and aggregate wages are clearly still picking up. And that's supporting overall spend. So a lot of that is the consumer purchasing power that reflects the health of the labor market.

DAVE BRIGGS: Do you expect anything in that story to change when we get retail sales on Wednesday? What do you think we'll learn?

MICHELLE MEYER: Well, I think it's going to be a strong report on Wednesday. We know that the last two months had, from the census data, contraction on a month over month basis. But we also know that the Census Bureau data around this time of year tends to be very volatile, very noisy, and subject to seasonal challenges. So I think once you smooth through the last few months, it should reveal an increasing trend consistent with what we're seeing in the SpendingPulse status.

So it's important to look past some of the month to month swings. We may see a very big pop this month, but that would be after the decline we had the month before from the retail sales numbers from the government. So definitely look at the trend, and the trend is still showing the consumers out there spending.

SEANA SMITH: Michelle, are there any signs of stress in the data that you're looking at or any trends that you're seeing in terms of trade-offs? Maybe people are trading down, because that's something that we're starting to hear about in this quarter's earnings reports.

MICHELLE MEYER: Well, I think the consumer is being mindful right now. And they're certainly making choices of how they spend, what they spend on, where they spend, et cetera. And it was clear in the holiday shopping season to us that consumers were being driven by the promotional period.

We had a bit of a fits and starts to the holiday season, particularly for things like apparel or department stores, where you had a rush of spending around the Black Friday period and then another rush of spending right at the end of the holiday season. And that tells us consumers are aware there's more inventory out there. They want to see discounting and promotions. And it's a bit more of a disinflationary psychology, which I think is also being reflected in the CPI data. And we'll see more of that when you look at some of the underlying goods inflation out tomorrow.

DAVE BRIGGS: And that spending, combined with the strength of the labor market, what does it tell you about Jerome Powell's ability to bring inflation down near his target any time soon?

MICHELLE MEYER: Well, I think from the Fed's point of view, there are both demand side and supply side factors that are driving inflation. And the good news is, on the supply side, they're getting a good amount of support. Supply chains have been fixed, to some extent. We do have a lot more inventory in the economy, better inventory management. That's all really positive when it comes to helping to contain some of the inflation, particularly for goods.

Now, the challenge, though, is that when you think about the Fed's dual mandate, it's price stability, which goes hand in hand with full employment. And the unemployment rate is very, very low. It just hit a 53-year low in the last report. So they do want to take out some of that excess in the labor market, get to a more sustainable and healthy pace of job creation, which would still allow for consumers to be out there spending, but at a rate that, again, is more consistent with a stable and sound economy.

SEANA SMITH: Michelle, despite all this, despite the fact that the consumers are resilient, the labor market has remained pretty solid here up until this point, there are still calls for a looming recession, what that might look like in the second half of the year. Are you seeing that at all in your data?

MICHELLE MEYER: I feel like there's been looming calls of recession for most of last year. And, you know, it clearly has not come. Now, I think we have to be mindful when we talk about what a recession is. Some parts of the economy are under a lot of pressure. The housing market throughout last year is in contraction territory when you look at home sales now, when you look at home prices. You are seeing some sides of the manufacturing sector start to pull back.

But when you put all the pieces together and you account for this full strength, particularly in the experience part of our economy, it's still an economy that is very much expanding and able to manage through what has been some tough headwinds, particularly when it comes to higher interest rates. But ultimately, the goal is to kind of rebalance the economy after the last few years, where we've had quite unprecedented swings in economic growth and volatility. So we need to rightsize the economy. And that, I think, is what we're seeing throughout the course of this year.

DAVE BRIGGS: All right, got to leave it there. Michelle Meyer from Mastercard, thanks so much. Great stuff.