In May, the Bureau of Economic Analysis published its Personal Income and Outlays Report. According to its report, consumer spending increased 0.1% from the previous month. Albeit small, the increase solidifies the notion that the consumer goods sector is hot right now.
For companies related to consumer goods, such as Target Corporation (NYSE:TGT) and Polaris Industries Inc. (NYSE:PII), the uptick in consumer spending is a wonderful sign. The rise also benefits credit service companies like American Express Company (NYSE:AXP), because more spending means that more consumers will purchase via credit card.
And of course it never hurts that the growing number of online sales are almost exclusively through credit card. Also, with a swipe fee of 2.7%, 1.35% higher than competitors, American Express Company (NYSE:AXP) pulls in more revenue per swipe. Of course there’s more good news to add to the consumer spending story – here’s what you need to know.
The most recent consumer spending data published by Gallup shows that spending remained mildly positive in April. Upper-income Americans spent an average of $140 per day while lower-income Americans spent an average of $72 per day. Naturally, the affluent spend more, especially on recreation.
Polaris Industries Inc. (NYSE:PII) has long been the provider of recreational vehicles for the wealthy. During the past 10 years, Polaris Industries Inc. (NYSE:PII) returned 1,000% more than the S&P 500. The company’s popularity even attracted the government as a customer. The D.O.D. now allows Polaris Industries Inc. (NYSE:PII) to compete for defense contracts, which will help the company achieve its goal of one day earning $200 million in revenue from its defense business.
Thomson Reuters reported that consumer sentiment was at a six-year high in the first quarter of 2013. And Bankrate’s Financial Security Index shows that American’s have remained financially confident.
The more confidence consumers possess, the more they’re likely to whip out their wallets and swipe their cards. Take for instance American Express Company (NYSE:AXP). Driven by confident consumers, and a “swipe fee” that is twice as high as Visa and MasterCard, the company’s share price has climbed 30% in 2013. Although a great long-term investment, I’m eyeing support around $68 before considering going long.
Personal consumption expenditure (consumer spending) is vital to economic growth. In the U.S., consumer spending equals about 71% of GDP, roughly $11 trillion. As such a large (and growing) percentage of the United States’ gross domestic product, it’s no wonder why this sector is so profitable.