Consumer Spending Growth In February Bad Sign For Investors? [Consumer Staples Select Sect. SPDR (ETF), Consumer Discretionary SPDR (ETF)]

credit card spendingMoe Zulfiqar: The United States Census Bureau reported consumer spending in the U.S. economy—adjusted for price fluctuation—increased by 0.2% in February from the previous month. In January, consumer spending increased by 0.1% after seeing a decline in December. (Source: “Personal Income and Outlays, February 2014,” United States Census Bureau web site, March 28, 2014.)

This sent a wave of optimism through the markets. We heard consumer spending is going higher; therefore, the U.S. economy will improve. Buy and buy some more, or you will miss out on future gains was what we were told.

However, I don’t think much thought was given to the increase in consumer spending compared to the previous years. Please look at the chart below. It shows the percentage change in the personal consumption expenditure each February over the last four years.

Year Change from Previous Month
February 2011

0.2%

February 2012

0.5%

February 2013

0.3%

February 2014

0.2%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed March 28, 2014.

There’s a clear trend. The percentage change in consumer spending this past February is the lowest since 2011. But if we were to extend this chart to include the change in consumer spending from December to February, this February saw the lowest percentage change since the same period in 2009 and 2010. This shouldn’t go unnoticed.

Going forward, it looks like consumer spending might even decline further. You have to understand that consumers have to be willing to spend; they have to be optimistic to buy. I look at consumer sentiment as one indicator of consumer spending, and it’s not looking very promising at this time.

In March, the Thomson Reuters/University of Michigan U.S. Consumer Sentiment Index declined almost two percent. The index fell from 81.6 in February to 80.0 in March. (Source: Mikolajczak, C., “U.S. consumer sentiment falls in March,” Reuters, March 28, 2014.)

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