Inflation-Adjusted Consumer Spending Falls in February
Key Indicator Updates for Retail Investors (Part 10 of 11)
Consumer spending
Assessing consumer spending levels is essential for retailers such as TJX Companies (TJX), Ross Stores (ROST), and Nordstrom (JWN). Consumer spending is the largest component of the gross domestic product (or GDP) and accounts for about two-thirds of the GDP.
It also impacts consumer discretionary ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY), which allocates ~19.8% of its portfolio holdings to specialty retailers such as TJX Companies and ~6.5% to multiline retailers such as Nordstrom.
Real consumption expenditure
Real personal consumption expenditure (or PCE), which is PCE adjusted for inflation, declined by 0.1% to $11.2 trillion in February 2015 compared to the prior month. The increase in real PCE in January was revised to 0.2% compared to the prior estimate of 0.3%.
Purchases of durable goods such as consumer electronics decreased by 1.1% in February 2015 compared to January. The decline was due primarily to a decline in purchases of motor vehicles and parts.
Based on revisions made to previously issued data, purchases of durable goods increased by 0.7% in January on a month-over-month basis. A decline in purchases of durable goods is not a good indicator for electronics retailers such as Best Buy (BBY). Best Buy issued a cautious outlook in March 2015 due to a weakness in industry demand.
Purchases of nondurable goods like food and beverages increased less than 0.1% in February compared to a decline of 0.1% in January.
Gallup’s March 2015 spending update
Gallup’s self-reported consumer spending poll for the United States tracks daily discretionary expenditures based on discretionary spending by respondents the previous day. According to the latest release, Americans’ consumer spending averaged $86 in March 2015, up $4 compared to February 2015. The consumer spending average in March 2014 was $87.
Despite lower gas prices and an improved job market, consumer spending has not increased significantly. This is impacting retailers like Macy’s, which issued a cautious outlook for fiscal 2015 after its fiscal 2014 sales registered a sluggish growth rate of 0.6%.
Consumer spending is also influenced by consumer confidence in the economy.
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