Consumer spending rises as oil prices plunge
US department stores: Key indicators and trends (Part 3 of 7)
Personal consumption expenditure
Personal consumption expenditure, or PCE, indicates consumer spending on goods and services in the US economy. It accounts for about two-thirds of the US GDP (gross domestic product) and is a key driver of economic growth.
Consumer spending rises in November
Real PCE, which is PCE adjusted for price changes, increased 0.7% to $11.1 trillion in November 2014 compared to the previous month in which the increase was 0.2%. About half the increase in November came from purchases of motor vehicles and parts.
Purchases of durable goods, like motor vehicles and parts, furnishings, and durable household equipment, were up 2.3% compared to an increase of 0.4% in the previous month. The purchase of nondurable goods saw a 1% rise, and services purchased increased by 0.4%.
Impact on retailers
Consumption expenditure has an impact on the retail sector (XRT), especially for the companies selling consumer discretionary (XLY) products, which includes consumer electronic retailers like Best Buy (BBY), and department stores like Macy’s (M), Nordstrom (JWN), Sears (SHLD), and Kohl’s Corporation (KSS).
Going forward, consumer spending is expected to rise further due to higher disposable income becoming available on falling oil prices and improved job prospects.
Consumer spending also increases when consumers are confident about economic growth. Consumer optimism is reflected in the Consumer Confidence Index, which we’ll look at next.
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