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Will Retailers Benefit from Higher Disposable Income?

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Data on income and outlays

The Bureau of Economic Analysis (or BEA) provides data on personal income and outlays on a monthly basis. This data is crucial for the consumer (XLY) and retail (XRT) sector, as it reflects the trend in consumer savings as well as income levels. The report for the month of January 2015 was released on March 2, 2015.

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Real disposable income

Real disposable income reflects the personal income remaining after the payment of taxes and adjusted for price changes. The BEA reported an increase of 0.9% or $103.4 billion in disposable income for the month of January 2015 compared to the prior month and was up 4.2% compared to the prior year. The real disposable income in December 2014 increased by 0.5% on a month-over-month basis.

January benefitted from lower current taxes. Personal current taxes declined by $1.8 billion in January 2015 in contrast to a $8.0 billion rise in December. For the full year of 2014, real disposable income increased 2.5% in 2014 in contrast to a 0.2% decline in 2013.

Interpreting the data

Trends in income and savings impact retailers (XRT) like Walmart (WMT) and Target (TGT), as well as department stores such as J.C. Penney (JCP) and Kohl’s (KSS). The Consumer Staples Select Sector SPDR Fund (XLP) allocates ~27% of its fund to food and staples retailers. The iShares Global Consumer Discretionary ETF (RXI) invests ~0.6% in Macy’s (M).

A higher real disposable income gives more buying power to the consumer. The next article in this series discusses the recent data on consumer spending in the US economy.

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