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. As a result, increased consumer spending is good for the health of the US economy.
Consumer spending was flat
The consumer spending for April didn’t change from March. In March, the spending increased by a seasonally adjusted 0.5% month-over-month. Economists were expecting a rise of 0.2% MoM for April. Consumer spending was weak on both durable and non-durable goods.
While personal income rose by 0.4% MoM, the savings rate increased to 5.6% from 5.2%. So, although the income rose, consumers withheld from spending the extra income.
Since consumer spending forms two-thirds of the US economy, it’s important to watch out for this variable. Decreasing to flat consumption is negative for inflation. Inflation is positive for gold because it’s considered an inflation hedge.
Since decreasing consumption points to a weakening economy, it’s positive for gold and gold-backed ETFs like the SPDR Gold Trust (GLD) as well as gold stocks like Newmont Mining (NEM), Gold Fields (GFI), and Kinross Gold (KGC). Combined, these three stocks account for 14.4% of the VanEck Vectors Gold Miners ETF (GDX).