Why hourly wages, personal income, and spending are important

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Rising hourly earnings and income

Average hourly earnings data is collected and reported by the Bureau of Labor Statistics. The bureau reports the data monthly. Personal income data is reported by the Bureau of Economic Analysis. The data is reported monthly in the U.S.

Interpretation

Average hourly earnings for production and non-supervisory employees increased to $20.67 in August—from $20.61 in July. During the same period, real average hourly earnings for all employees increased by 0.4%. Personal income increased 0.3% from July to August. In the above chart, we can see that personal income took a hit from January 2009 to September 2010. Personal income was affected by the recession. However personal income increased since then.

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With an increase in average hourly earnings and personal income, consumers will also increase their spending. This includes spending on discretionary items. It’s beneficial for the Consumer Discretionary Select Sector SPDR (XLY). It also benefits restaurant stocks like McDonald’s (MCD), Chipotle Mexican Grill (CMG), Panera Bread (PNRA), and Yum! Brands. (YUM).

During these improving conditions, restaurants may increase their advertising spending and run promotional campaigns. This would help restaurants capture the higher spending sentiment and increase the profit share. This involves increasing the total amount spent by a customer at a restaurant. Some strategies include increased offerings during different parts of the day—like breakfast. Another example is late night offerings—like Taco Bell. Taco Bell is under Yum! Brands (YUM).

In regards to rising hourly earnings and personal income, it’s important to also understand how personal savings and disposable income have been affected. We’ll discuss this in the next part of the series.

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