These Americans Are Driving Consumer Spending Recovery

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The weekly snapshot of retail sales compiled by the industry trade groups — the International Council of Shopping Centers and Johnson Redbook — provide a glimpse of the January’s consumer spending trajectory, and for weeks, both retail sales indices have exhibited weakness. Both indices ended December with slowing or negative growth, and slow growth has stuck. But it is important to remember that January is typically a transitional month in which business volume is low and sales are driven by price markdowns employed to clear inventories. In general, recent numbers suggest that consumer spending habits are shifting away from their holiday pattern and back toward basic commodities and food.

Consumer spending is expected to strengthen in 2014 and drive greater economic growth. But for economists, the question is where the source of strength will originate. Last year, consumer spending patterns strengthened, and the overall picture of consumer spending is one of improvement — improvement that is gaining momentum. However, a closer look reveals that more conflicting indicators about the health of the American consumer, especially when inspected along socioeconomic lines. According to a Morgan Stanley analysis, it was the wealthy that drove the increases in consumer spending in 2013, and that determination suggests that the American economy is on a two-track recovery.

A similar assessment was made by Telsey Advisory Group senior research director Joe Feldman in an interview with CNBC midway through last year; the United States is experiencing a “bit of a split economy where that lower income consumer has been under a lot of pressure but the higher end is doing OK,” he said. That reality becomes very clear when examining the retail categories where spending was strongest; gains were not spread evenly throughout the sector. Morgan Stanley reported that housing-related goods and portfolio management and investment services, as well as aircraft, luggage, air travel, and other luxury goods were among the fast-growing segments.

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