<

Important releases hone in on rates and consumer spending

Part 2
Important releases hone in on rates and consumer spending (Part 2 of 10)

Why Gallup’s daily consumer spending set the bar high in June

Gallup’s U.S. Consumer Spending Measure for June

Each month, Gallup releases its estimate of daily discretionary expenditure for the average American. Gallup will release June’s report on Monday, July 7.

Part 2Enlarge Graph

Highlights of last month’s report

  • Average daily consumer expenditure in May 2014 spiked to $98. This is a six-year high. Last May, consumer spending averaged $90 per day.
  • The difference between April and May’s daily expenditure levels normally averages $3 to $6. This time, it came in at $10. This is an unusually high difference. This was also the highest difference since 2008, when average daily spending surged by $28.
  • The increase to $98 per day was largely due to the three-day Memorial Day weekend. Respondents reported a daily spending average of $134.

What to watch out for in this month’s release

Consumer spending has been flat for most of this year, except May. It should get a boost due to the much-higher-than-expected increase in non-farm payrolls. In June, the increase in non-farm payrolls was estimated at 288,000 by the Bureau of Labor Statistics, compared to consensus estimates of 211,000. The unemployment rate dropped to 6.1%. This was the lowest level since September 2008.

Despite the one-off Memorial Day gain last month, consumer spending levels should stay healthy in June due to the improving labor market.

Implications for investors

Consumption is one of the most important components of U.S. 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 (SPY). It especially helps consumer discretionary stocks like the Gap (GPS) and Fossil. You can gain exposure to the consumer discretionary sector by investing in ETFs like the State Street SPDR S&P Retail ETF (XRT) and the Vanguard Consumer Discretionary ETF (VCR).

Other factors constant, bond yields usually rise following an improvement in economic indicators. This reduces bond prices. But, despite economic fundamentals showing improvement this year, the bond market (BND) has stayed on an uptrend. This is due to demand from long-term institutional investors like pension funds and also overseas demand due to the increase in demand for safe-haven assets. So bond market performance will depend on these factors.

What does Gallup’s U.S. consumer spending indicator measure?

Gallup tracks daily discretionary expenditures through ~13,000 interviews with American adults. It queries survey respondents on their discretionary spending expenditure for the previous day. The expenditure estimate doesn’t include regular household bills or what consumers spent on big-ticket items like refrigerators or cars.

FOMC minutes

In the next part of this series, we’ll preview the FOMC minutes. These will come out on Wednesday, July 9.

The Realist Discussions