Why the Gallup spending measure increased in July

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Must-know: Key economic indicators of consumer-oriented past week (Part 3 of 7)

(Continued from Part 2)

Gallup spending measure increased in July

Gallup’s self-reported consumer spending poll for the U.S. in July was released on Monday, August 4.

Gallup tracks daily discretionary expenditures through more than 15,000 interviews with American adults. It surveys respondents on their discretionary spending expenditure the previous day. The expenditure estimate doesn’t include regular household bills or what consumers spent on big-ticket items like refrigerators or cars.


Highlights from July’s report

Average daily consumer spending for Americans increased slightly to $94 in July. This was an improvement over the July, 2013, average of $89, but lower than May’s six-year high of $98.

The July reading suggests a mixed bag for the economy. While it represents a much higher level of consumer spending than the $60–$70 averages found for much of 2009–2012, it’s still below the $100 averages seen several times in 2008 before the financial crisis. Spending had come close to this level in May of this year at $98—a monthly figure not seen since September, 2008.

The improvement in July after spending dropped in June, as well as the longer-term recovery in spending over the last two years, according to Gallup is positive signs because consumer spending is a major fuel for the U.S. economy.

The increase in consumer spending among all Americans can largely be attributed to wealthier Americans spending more in July. The Gallup economic confidence index readings indicated that middle and lower-income Americans’ confidence in the economy fell, while wealthier Americans’ confidence stayed the same in July. Americans living in households with $90,000 a year or more in income reported spending on ~$190 a day in July compared to this group’s ~$157 average in June. On the other hand, consumer spending among middle and lower-income Americans dropped slightly to $75 per day.

Investors’ takeaway

Consumption is one of the most important components of U.S. gross domestic product (or GDP). It makes up over two-thirds of the economy. An improvement in economic outlook, combined with job market improvements and consumer sentiment, is generally bullish for the stock market. It especially helps consumer discretionary stocks like the Ford Motor Co. (F) and Home Depot (HD).

Consumer spending directly impacts the retail sector. Increases or decreases in discretionary spending likely increase or decrease top-line results for retailers. The Consumer Discretionary SPDR ETF (XLY), which tracks companies in the consumer discretionary sector, has invested in Ford and Amazon (AMZN). Likewise, the SPDR S&P Retail ETF (XRT) which tracks the S&P Retail Select Industry Index represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market, and NASDAQ Small Cap exchanges.

Consumer spending increased in July as indicated by the Gallup Consumer Spending Index. This was further validated by the ICSC-Goldman Store Sales Index and the Redbook Index, which released on Tuesday, August 5. In the next section, we’ll look at how these indicators fared for the week ending August 2.

Continue to Part 4

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