For those of you who would prefer to listen:
The calendar has turned to August and students from across the country are heading back to school. Summer is coming to a close. Transition continues.
I’m writing this from Bloomington, Indiana as I help move my girls into their new experience at IU. Playing D1 waterpolo and studying at the Kelley School of Business will certainly stretch their minds and muscles.
Sammy and Nikki have been properly prepared. Beyond the classroom, I made sure they watched Breaking Away and Hoosiers, as well as listen to John Mellencamp. They’re legitimate Hoosiers now. These California girls will be missed at home. But they’re more than up for the adventure. Dad is a wannabe Hoosier too.
Retail sales were reported Friday. It measured the month of July. They continue to be solid. American consumers keep spending. Money is flowing through the system.
Something interesting: Two-thirds of back-to-school shoppers had already begun purchasing items for the upcoming school year as of early July. This, according to a National Retail Federation survey. The NRF tracks a ton of economic activity. Importantly, half of back-to-school families said they were shopping earlier this year compared to last year out of concern that prices will rise due to tariffs.
Families with students in elementary through high school said they planned to spend an average of $858.07 per kid on clothing, shoes, school supplies and electronics. That is down from the $874.68 spent last year. College students and their families are planning to spend an average of $1,325.85, down from $1,364.75 in 2024. The top categories are electronics, dorm furnishings, clothing and food. No surprise there.
In case you were wondering, back-to-school shopping accounts for roughly 2% of the total annual retail spending. So it’s not huge, but still significant. The big spend of course comes over the holidays, which accounts for nearly 20% of the total retail sales for the year.
The good news: Inflation has stabilized; At least as of Tuesday. The Consumer Price Index (CPI) rose 0.2% month-to-month. That was in line with Street expectations and a bit cooler than June’s 0.3%. The annualized headline of 2.7% was less than the 2.8% expected. Shelter rose 0.2% and was the primary driver in the monthly price increasewith rents and homeowner equivalents both up 0.3%.
Core service prices increased 0.4%, accelerating from June’s 0.3% rise. Flights were a big reason. Air fares jumped 4.0% in July, reflecting demand for Summer vacations. Used car prices rose 0.5% for the month.
It wasn’t all about price increases in July. Disinflation was present too.Energy prices fell 1.1% with the decline of the price of Crude. Even though flights were higher, hotel room prices fell. Apparel prices were up just 0.1% while grocery prices were flat.
The CPI report was a key piece of data providing support for the Fed to cut at its next meeting. The odds of a September rate cut jumped north of 90% after the report. It was 82% prior. But it might be one and done. There’s a distinct chance that inflation picks up into year-end which would freeze the Fed again from more cuts. The Market was moving accordingly.
Then July PPI hit. That’s the Producer Price Index. Wholesale inflation accelerated in July by the most in 3 years. It generally hits companies first and consumer price rises tend to follow. The takeaway is that tariffs have started showing up in input prices. Companies have started passing the rising costs to we consumers. The risk is higher prices heading to the holidays.
I know this is boring stuff. But it’s important. The prices we pay impacts how we live. Math and numbers can easily turn off the masses. I try to make the seemingly boring stuff less boring. Perhaps sometimes it becomes, dare I say, interesting? Few things would please me more.
Here’s the deal: Financial Literacy – It’s lacking.
Recent test scores and surveys indicate that less than half of Americans are financially literate. For Gen-Z, it’s just 38%. Those are defined as Americans born between 1997 and 2012.
This Gen-Z group has embraced the buy-now, pay-later plans. That has them racking up credit card debt with payments at over 20% interest rates. The delinquency rates are nearing 10%, showing how easy it is to get buried in debt. Life is expensive. It requires financial discipline.
It’s important that kids understand this stuff as they prepare for their lives ahead. It’s important that we adults understand it too. There’s no time like the present to get started.
Knowledge is power. Here is the Financial Force: Compound interest. Einstein called it the 8th wonder of the world. Those who get it, receive it. Those who don’t, pay it. Einstein was a genius. But you don’t have to be a genius to benefit from compounded growth.
I’ve been spending quality time with high school students in our community. I can’t emphasize enough how impressed I am with this younger generation. My experience is, they want to work and learn. Good news, it’s brought us smart and eager interns. These kids are hungry for knowledge and to make the world a better place.
I’d like to highlight one impressive student at Las Lomas High School in Walnut Creek. His name is Mason. He’s naturally inquisitive. This kid is going places. Where that is, it’s far too early to tell. But his instincts, drive and creativity are to be commended.
Mason and his friends have established a nonprofit with the sole purpose of raising money for those less fortunate to attend college. They took action. I was hooked immediately when he told me he climbed trees to gather mistletoe and sell them over the holidays. Now that’s a doer that is making things happen.
It’s a good story to tell and it’s one I like telling. They’ve established the “Knights Legacy Fund”. I’m on board, helping their cause. With a supportive and pragmatic Principal and an intellectually curious investment club, I’ve been going back to school at Las Lomas to promote financial literacy and help these savvy students invest for a better tomorrow. That’s Bedell Frazier’s professional purpose. In my book, it’s time very well spent.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
