Consumer spending is an important economic indicator and can be a great way of evaluating the health of an economy. During times of prosperity, consumer spending often increases as people have higher disposable incomes to purchase goods and services. On the other hand, during periods of economic hardship or recession, consumer spending usually declines as people tighten their belts in terms of disposable income and focus more on saving than purchasing.
Yesterday, Bloomberg News reported that retailers had overcome a short holiday selling season to notch decent growth over 2018, and that this had boosted big bank stocks in turn, because it signaled that the U.S. consumer spending is not quite done yet. According to the article:
All are exposed to consumers, who seemed healthy as Amazon.com Inc. said its holiday season this year was “record breaking,” and Dow Jones reported retailers fended off an unfriendly calendar to draw more shoppers ahead of the holidays, citing data from Mastercard SpendingPulse.
This is not especially surprising, as the record-breaking economic growth, and consumer spending, shows no signs of abating, with at least 235,000 jobs added in October. Wages continued to increase, and unemployment remained below what used to be considered the floor.
However, what goes up must come down, and with Americans at near-record levels of credit card debt, the inevitable downturn could bring a wave of defaults that would seriously undermine the banking sector. Not being an investment advisor, I nonetheless would be looking to reduce my exposure to the industry.
The end of the year is a great time to rebalance investments. We have seen booms turn to busts, and this one is very overdue. Nevertheless, it is good to celebrate another successful year, and hope against hope it will continue in 2020.
Overview by Aaron McPherson, VP, Research Operations at Mercator Advisory Group