Consumers are considered to be the core of almost all economic activity. Recent data on jobs, income, inflation and economic growth reveal that consumers are currently in a favorable position, raising chances of increased spending.
The labor department’s jobs data illustrates a tightened jobs scenario, with unemployment rate remaining range bound. Recent reports show that unemployment rate rose unexpectedly to 4.4% in August following a 4.3% growth in July.
Further, the commerce department stated that annual gross domestic product (GDP) rose 3% in second-quarter 2017, marking the best growth in three years. This growth was supported by robust consumption gains of 3.3%. Consumption accounts for nearly 70% of the economy.
Notably, consumer spending for July increased 0.3% after an upside of 0.2% in June. While this reflected a slight slowdown from the economists forecast of 0.4% growth, it still indicates that consumers are willing to spend primarily backed by the strong labor market.
Apart from this, other factors influencing the consumers’ willingness to spend are rise in incomes and lower inflation.
Incomes rose 0.4% in July, reflecting the highest since February. Further, personal consumption expenditure (PCE) price index excluding food and energy, which is Fed’s preferred inflation measure, increased only 0.1% remaining stable for three consecutive months. Further, it grew at an annual rate of 1.4%, which is below the Federal Reserve’s 2% target. The central bank’s preferred inflation gauge has matched or topped policy makers’ target in just two months since 2012.
The solid consumer spending, supported by a chic jobs scenario, indicates that the economy is well-poised for consistent growth in the second half of 2017. Further, the diminishing inflation rate lowers the Federal Reserve’s chances to raise borrowing rates for the third time this year, in the scheduled December meeting.
Moreover, these positives from the economic data were reflected in Consumer Confidence, which reached the second highest level in August since late 2000. The Conference Board’s Consumer Confidence Index surged to 122.9 last month from July’s revised reading of 120.
How the Consumer Discretionary Sector Stands to Gain From This Trend
Well, spending on discretionary items which form part of the Consumer Discretionary sector is largely dependent on consumers’ spending appetite. Given the favorable background discussed above, consumers are currently willing to spend on discretionary items like durable goods, apparel, entertainment and leisure, and automobiles.
The Consumer Discretionary sector growth trends since the start of 2017 have been very appeasing. Markedly, the sector recorded 12.6% growth year to date, comfortably outpacing the 10.2% upside of the S&P 500.
