After a few months of abysmal market news and performance (growth stocks plummeted, GDP growth was only 0.1% for the first quarter) we finally got a piece of good economic news. The U.S. consumer spending increase for March was the biggest increase in over four and a half years. The Commerce Department said consumer spending increased 0.9% in March, the biggest gain since August 2009 and a blow out of economists’ expectations of a 0.6% rise.
Before we get into it, let’s break down what exactly consumer spending is and why it’s so important. Consumer spending is essentially the amount of money American households spend on any type of shopping. This includes furniture, food, clothes, etc. This statistic is measured monthly and gives a sense of how much short-term demand there is for goods in the economy. Consumer spending accounts for more than two-thirds of U.S. economic activity, making it a key indicator of economic health.
March’s big increase is exciting because it indicates the beginning of the year’s weak economic performance was likely temporary due to the terrible weather conditions (aka never ending snow). When it snows I’m leaving my house for only the most necessary endeavors, not shopping, and it sounds like many other Americans had the same idea. Now that the weather is mostly improving, it looks like the economy is improving right along with it.
From a trading perspective this means I’ll be paying a close eye to retailers’ next earnings reports. Assuming it is a strong retailer already (I’m looking at Gap (GPS), Restoration Hardware (RH), Michael Kors (KORS), this report makes me more optimistic they’ll beat earnings.
They one concern I have is that employment numbers continue to be strong. If employment can’t keep up with the increase in spending, the growth we saw in March won’t be sustainable. I’ll be keeping an eye on that number as well. All in all, it’s a good day in the American economy.