Checking In On The U.S. Consumer’s Spending Habits

by Louis Navellier | September 17, 2012 10:00 am

Checking In On The U.S. Consumer’s Spending Habits

I can hardly believe it, but at least in my neck of the woods, stores have Thanksgiving and Christmas decorations on sale already! It just comes to show that the U.S. economy is ready for the holiday shopping season, and I can’t judge — the way I see it, consumer spending is one of the most important factors in the economic recovery.

And this week shed more light on how the American consumer fared — as several economic reports for July and August were released.  If you didn’t have time to read each and every report, not to worry — I keep consumer spending trends at the top of my radar so my readers don’t have to. Let’s take a look:

In July, consumer credit fell by $3.28 billion, coming way below the $9.1 billion gain forecast by economists.  The drop was caused by a $4.82 billion drop in revolving credit, or credit card spending. Meanwhile, nonrevolving debt, which includes college loans and auto purchases, advanced $1.55 billion — this is the smallest increase in a year. This has been the first time in just under a year that headline consumer credit has fallen. The good news is that for the first time in quite some time, student loan debt appears to be moderating. The not-so-good news is that consumers appear hesitant to ramp up spending why there is uncertainty surrounding the jobs market.

Retail sales rose an impressive 0.9% in August.  However, excluding strong vehicle sales and gasoline sales, overall retail sales rose only 0.1%, which was dramatically lower than economists’ consensus expectation of 0.4% rise. Also notable is that July’s retail sales gain was revised down to a 0.6% gain down from the 0.8% previously reported.  Overall, consumers continue to spend freely, but much of that spending is attributable to high gasoline prices.

Consumer prices posted their biggest monthly rise since March 2009.  Specifically, the Consumer Price Index (CPI) rose 0.6% in August, due to a 5.6% increase in energy prices. Excluding food and energy prices, the core CPI rose only 0.1%.  Gasoline prices rose 9% in August, while food prices rose 0.2%.

Due to the drought in much of the Midwest, food prices are expected to continue to rise in the upcoming months and we’ll probably see the same for energy prices.  In the past 12 months, the CPI has risen 1.7% and the core CPI has risen 1.9%.

All in all, this was a solid bath of economic reports. Now that the Federal Reserve has committed to buy as many bonds as it takes to boost employment[1], inflation is going to be more closely scrutinized that ever.

In the meantime, retail sales should get a boost from the upcoming holiday shopping season (especially now that the Apple (NASDAQ:AAPL[2]) iPhone 5[3] is out!), and revolving debt should rise accordingly. I’m also confident that as we near Election Day in the U.S., consumer confidence will go up as politicians continue to sell voters on their plans for the economy.

That’s all I have for this week—have a nice weekend and enjoy the cooler weather.

Endnotes:
  1. buy as many bonds as it takes to boost employment: http://investorplace.com/2012/09/5-things-qe3-wont-fix/
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. iPhone 5: http://investorplace.com/2012/09/thursday-apple-rumors-analysts-consumers-like-iphone-5/

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