Consumer Spending Indicators Coming – Still Improving?

Tuesday, December 22, 2009

1177581_shopping_mallAs we hear frequently, consumer spending is key because it is about two-thirds of the economy. The main question has been how long consumer spending will be weak. The worry is that today’s reduced level is the new normal. This fear is seemingly reinforced by surveys in which the pointed question is asked: “Are you permanently reducing your spending habits?” The answer seems to be, “Yes!”

Continuing our look at the last two weeks of December – our period of special opportunity – consumer indicators are being released. The monthly measures could provide additional support of an evolving consumer spending trend – one that is showing growth.

When looking at the indicators, we need to keep in mind that consumer attitudes are notoriously fickle. A spike in the gas price or an unexpected event can knock survey results about. In recessions, people espouse a strong desire to control spending, dump credit cards and take out 15-year mortgages. However, when normality returns, so, too, do life’s desires and opportunities. Hunkering down can morph quickly into ramping up.

Consumer Surveys

There are two surveys being reported this week and next:

Reuters/University of Michigan Survey of Consumers (release scheduled for Wednesday, 12/23 at 9:55 AM EST), from which three results are obtained:

  • The comprehensive Index of Consumer Sentiment reading (this is the one I present in the graph, below)
  • A present day focused Index of Current Economic Conditions
  • A future focused Index of Consumer Expectations (this is one of the Leading Economic Indicators)

Conference Board Consumer Confidence Survey (release scheduled for Tuesday, 12/29 at 10:00 AM EST). It, too, has three components:

  • The comprehensive Consumer Confidence Index (this is the one I present in the graph, below)
  • A current day focused Present Situation Index
  • A future focused Expectations Index

(Of the two, I prefer the former. The Conference Board survey results tend to be more volatile, as shown in the graph. Although these results are followed, I do not find them to add much value to the Reuters/University of Michigan readings.)

Consumer Spending

Total purchase data is the “Personal Consumption Expenditures” from the US Department of Commerce/Bureau of Economic Analysis (release scheduled for Wednesday, 12/23 at 8:30 AM EST). These monthly amounts are seasonally adjusted and reported on an annualized basis. (Data is often reported as monthly percentage changes.)

The purchases are split between goods and services. Goods are more widely followed (and are in the graph, below) because they are more sensitive to consumer attitudes and, therefore, are felt to be a better measure of purchasing behavior.

In addition, there are two weekly retail sales measures (not included in the graph). Each is reported on Tuesday: ICSC-Goldman Sachs (major retail chain sales) and Redbook (chain store, discounter and department store sales). The focus on retail sales is thought to be even more sensitive to consumer attitudes. Good to watch, but they can be volatile because of weather, the actual timing of the week (e.g., the day on which Christmas falls) and the continuing growth of internet-based sales.

Consumer surveys spending

The graph shows the challenge of watching or acting on any one month’s measures. However, it also shows that a few months’ readings can expose a trend. And that’s what we see happening: like other economic measures, an improving trend beginning around last March.

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So, watch the indicators for continued improvement. Hopefully, both housing (discussed yesterday) and consumer spending continue giving positive readings. If so, we will have strong reinforcement that the good stock investment environment remains – the perfect foundation for finding opportunities before year-end.

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December 2009