September Spending Woes
We tend not to get bent out of shape (or comment on) the kabuki theater that is Washington politics these days unless it starts to impact the consumer (i.e. Food Stamps, sequestration cuts, etc.). In the case of the current government shutdown, there is obviously a spending impact associated with a good chunk of middle to higher income wage earners being furloughed, though we see that as likely being consumption delayed rather than consumption denied, to the extent that those wage earners will likely be made whole on back pay.
However, we track the Gallup polling data on consumer spending – the poll asks the participants to reflect on the prior day’s spending (cash and credit) and has a standard error of +/- $8. As we have discussed previously and on many occasions, 2013 has been a solid year for consumer spending – driven largely by gains in real estate assets and job growth. The average daily spending thus far in ’13 is $88 – within shouting distance of the ’08 number ($96, Exhibit 1).
While there are multiple factors that go into consumer spending decisions, the rhetoric surrounding the government shutdown, possible debt default, etc. have likely contributed to a material slowdown in consumer spending since the beginning of August.
The $85 per day the average respondent spent during the last week of September is the lowest level we have seen since April, but obviously still well above the average readings for the period of 2009 – 2012.
Of course, other explanations are possible, including some of the factors that we have analyzed – lower rates of growth in disposable income and changes in saving rates.
Regardless, what seems to be clear is that U.S. consumers appear to be spending less. This may make for another rocky round of retail earnings, and we would tread lightly in a number of consumer discretionary sectors (restaurants, specialty and multiline retailing) given that valuations appear to be largely full.