Americans Are on a Shopping Spree
Americans are spending money again. More than you probably think.
Shopping with the most spare cash since 2008, consumers are giving U.S. companies record sales for discretionary items as well as the biggest boost to their shares in 25 years. From jewelry to home improvement, from e-commerce to Internet-based services, from automotive retailers to home builders, revenue for the most recent quarter is at a record, according to data compiled by Bloomberg.
One could be forgiven for thinking otherwise. Six years after the worst recession since the Great Depression, reporting on the American consumer has mostly focused on erratic retail sales and data on durable goods, spending and sentiment that contribute to the perception of an economy awaiting its traditional mainstay.
Government statistics have fed the narrative. For example, the Commerce Department reported disappointing consumer purchases in February, up 0.1 percent after a 0.2 percent decline in January; adjusted for inflation, reported spending declined for the first time in almost a year.
These figures are misleading. Although record snowfall probably did depress spending early this year in the Northeast and Midwest, we won't really know what happened until the Commerce Department revises its first-quarter spending figures in May. When it did so for the fourth quarter of 2014, consumer spending turned out to have climbed the most in eight years, and the 4.4 percent increase in household purchases was the most since the first three months of 2006. The University of Michigan's consumer sentiment index in March completed the strongest quarter since 2004, complementing the Bloomberg Consumer Comfort Index, which last week reached the highest level since May 2007.
Figures from U.S. companies are in sync with this trend. Companies supported by discretionary spending on things such as cars, clothes and restaurants are prospering. Sales per share of the 85 such companies in the Standard & Poor's 500 Consumer Discretionary Sector Index, including Whirlpool Corp., CarMax Inc. and Chipotle Mexican Grill Inc., surged to the highest valuations since Bloomberg began compiling the data in 1990.
Based on their most recent quarterly filings, revenue for these companies grew 7 percent over the same quarter last year. The increase is 76 percent greater than the average growth of the past five years. Among these 85 companies, 50 of them are selling goods and services at a faster rate than during the past five years.
The trend is replicated by the 454 companies similarly reliant on consumer discretionary spending in the Russell 3000 index, where revenue in the most recent quarter grew 11 percent over the same quarter last year. This rate is also 76 percent greater than the average growth for the past five years. And among these 454 companies, 253 of them are selling goods and services faster than the average sales-growth rate of the last five years.
So far in 2015, the 85 consumer discretionary stocks in the S&P 500 are the best performing cohort after health care, gaining 5.5 percent and beating the S&P's 1.1 percent overall return. Urban Outfitters Inc. appreciated 24 percent this year and experienced 12 percent quarterly sales growth -- this after 4 percent growth over the past five years. Netflix Inc.'s recent quarterly sales increased 26 percent, four times its five-year average, and offering a 29 percent gain for shareholders.
The 454 consumer discretionary stocks in the Russell 3000 index were no different. They gained 4.7 percent this year, beating the benchmark's 2 percent to become the second-best performing category. Skechers USA Inc.'s quarterly sales grew 26 percent after five years of 3 percent average growth, and providing share gains of 31 percent.
The stock market reflects the growing appetites of both consumers and consumer discretionary companies, which announced plans to spend $80 billion on acquisitions in 2014, the most in at least 12 years. The growing confidence revealed in the latest University of Michigan consumer sentiment index and the Bloomberg Consumer Comfort Index derives from a U.S. savings rate that increased to 5.8 percent, the highest since December 2012, as well as increased payrolls and hourly earnings.
Add cheap oil to the equation, and you have another reason to believe that the American consumer is back online or maybe even in the store.
(With assistance from Shin Pei.)
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