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Consumer Spending

Today's numbers on personal income and outlays shows more tightening of the consumer wallet, the leading component of the US economy. Consumer spending, which represents ~70% of GDP, hit a 17-month low in February. On an annualized basis, consumer spending has been growing at over 5% per year for the past 10 years while disposable income has grown less than 5% per year. The chart below shows the average annual personal consumption numbers broken out by its three components.

Services has been growing the most with non-durable goods coming close behind. These two components slowed down dramatically in February, with non-durable spending contracting in the month.

Spending declines are related to overall sentiment which also continues to decline. The Conference Board's Consumer Confidence Index fell to its lowest level since 2003 and the University of Michigan's Index of Consumer Sentiment fell to 69.5, its lowest level since 1992.

Of course these negative sentiments hurt the Consumer Discretionary Sector which is down 7% year-to-date. Retailers, in particular, feel the pain as consumers stop spending. Today, JC Penney cut its profit forecast on weak sales. Other sample companies feeling the pinch from reduced consumer spending include

  • Amazon.com down 24% for the year
  • Best Buy down 22% for the year
  • Jones Apparel down 17% for the year
  • Liz Claiborne down 12% for the year
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