Market Commentary: Summertime Spending

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Summertime Spending

What consumer spending patterns mean for your portfolio (and vacation)

At last, summer is here. The sun shines on graduates, newlyweds, vacationers and the garden-variety consumer alike. Sunshine comes free of charge, but the same can’t be said for all that comes with the season. A smart interview suit for the graduate, champagne for the newlyweds, airfare to Heathrow – or the Memorial Day barbeque you hosted – all contribute to the 70% of GDP made up by consumer spending. It is therefore critical to keep a keen eye on consumer spending in the context of the economy’s “soft-landing” base case to make financial planning decisions.


With that, let’s discuss the state of consumer spending and its implications for you, beginning with the bright side, in the spirit of the season:


  •    Wages grew this past year at a rate exceeding inflation, so consumers have benefited from positive real wage gains.
  •       Consumer confidence is higher than this time last year and well above that of 2022 lows.
  •       Households demonstrate resiliency in servicing debt and limiting the use of variable-rate debt, a factor that played a large role in the 2008 financial crisis.
  •      Most segments within the consumer discretionary sector (i.e. apparel, retail, travel, restaurants, recreational equipment, etc.) reported double-digit earnings growth or better in the first quarter, with autos being one notable exception.


Despite the tailwinds stated thus far, consumer discretionary stocks have performed more-or-less flat on the year while the S&P 500 is up 12% this year through May 28th, and consumer staples (i.e. food, beverages, household products, etc.) are not far behind. Let’s move to potential headwinds:


  • Cumulative household savings are well below peak pandemic levels, implying spending can last only as long as the economy remains near full employment and wages keep pace with inflation.
  •   Though debt service has tended to be resilient, credit card and auto loan delinquencies have continued progressing upward since 2020, particularly among Millennials and Gen Z-ers.



  •    The wealth gap between Baby Boomers and younger generations has grown significantly in recent years but may shift as more Millennials enter their prime earnings ages.
  •    Wage growth for households earning more than six figures annually was lower than for households earning less over the past year, narrowing that wealth gap to an extent.
  •     In travel & leisure, demand is off post-pandemic highs, but fueled again by a strong dollar.
  •    In restaurants, grocery prices have come down faster than restaurant menu prices, yet much of the fast-casual space has benefited.
  •      In retail & apparel, high competition, layoffs among high earners and mortgage rates all play roles in trends like sidelining big-ticket items in favor of marginal home improvements, high-income shoppers gravitating to value chains and reshuffling the market shares of sneakers and athleisure brands.


Collectively, the data points to healthy consumer spending overall and we see reasons to stay the course when it comes to portfolio management. Reviewing the attributes of our recommended list of researched and monitored investments, whether individual companies or funds, allows us to better manage risk and reward for our clients in a complex consumer landscape. We continue to invest opportunistically while balancing exposure to various sectors, as new patterns emerge with the changing of the seasons.


This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any investment product. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Past performance does not guarantee future results.