A rise in household spending suggests improving disposable household income, which is likely a result of wage growth. Consumer spending drives business momentum and accounts for two-thirds of US economic activity. A rise in consumer spending leads to an increase in prices for goods and services followed by increased inflation. The Fed’s target is 2% inflation.
Spending down in December
The U.S. Bureau of Economic Analysis reports consumer spending in the United States on a monthly basis. US consumer spending in December declined by a seasonally adjusted 0.3% month-over-month. That’s the biggest decline since September 2009, and a surprise given the monthly gain of 0.5% in November.
Yet consumption was quite strong in the preceding two months. In fact, we saw the biggest jump in consumer spending this fourth quarter than we’d seen in almost nine years. Going forward, strong job market data, including a falling unemployment rate and wage growth, should boost consumer spending.
Meanwhile the Fed has been less successful meeting the objectives of the second part of its mandate. The personal consumption expenditure, or PCE, is running lower than the Fed’s target.
Importance for gold investors
Investors need to watch consumer spending and inflation figures. Now that labor market conditions are improving steadily, inflation is the one variable that will determine how soon the Fed will decide to hike US interest rates. Until that time, the Fed will let the inflation rate run. This is likely to have a fallout impact on gold prices and gold-backed ETFs such as the SPDR Gold Trust (GLD), as well as on gold stocks such as Goldcorp (GG), Newmont Mining (NEM), and Kinross Gold (KGC). Combined, these three stocks make up 20.9% of the VanEck Vectors Gold Miners ETF (GDX).