Consumer Spending

Consumer spending is an important indicator of US economic health, representing nearly 70% of overall US GDP1. Last year, consumer spending had a dramatic pullback due to fears of COVID and the restrictions that followed. This was the primary cause of the US falling into a recession. As COVID began to show signs of decline, and restrictions were lifted, the consumer began to rebound. However, the consumer has recently been faced with new concerns over inflation and the Delta variant, causing some fluctuations in consumer sentiment. Investors gauge consumer sentiment on how confident consumers are feeling about the overall economy and their personal situation, which has a direct impact on their spending habits. So, we monitor any trend changes in consumer sentiment as a potential for a change in spending levels in the economy.

A widely used metric for consumer sentiment is the University of Michigan consumer sentiment report (see chart below)2. As you can see, the recent trend has been rebounding off the lows of March 2020. However, the most recent preliminary reading was 70.23, which is the lowest sentiment reading since December 2011. While one data point doesn’t make a trend, this action is worth watching as caution around the COVID Delta variant, along with rising prices due to continued supply constraints, could have a negative impact on the US consumer.

The most recent data released on retail sales today was also below expectations. This was primarily a result of a negative trend in autos, somewhat offset by spending on clothing and food items. While retail sales data was below expectations, the growth rate is still 15.8% on a year over year basis4.

While we have seen a slight drop in consumer demand for goods, the ISM Non-Manufacturing PMI, a measure of consumer demand for services, saw one of the sharpest expansions in the service sector since the 1990s (see chart below)5. In order to see the full consumer story, it is helpful to look at these two measures together. While demand for goods slightly subsided, there was a sharp increase in services, pointing to the continuation of a strong consumer in today’s economic landscape.

As can be seen above, data regarding the health of the US consumer can sometimes be conflicting. Further, we believe these trends are worth monitoring, but one data point is not sufficient in adjusting portfolios or positions dramatically. We believe that, while there may be temporary headwinds to consumer spending that are worth monitoring, the long-term trend of a healthy and willing to spend US consumer remains intact. As a result, we have positions across portfolios designed to benefit from a healthy consumer. Examples include companies such as: Amazon (AMZN), Darden Restaurants (DRI), and Southwest Airlines (LUV).


  1. Louis Fed Shares of GDP 8.16.21
  2. University of Michigan Consumer Sentiment 8.17.21
  3. Louis Fed Consumer Sentiment 8.16.21
  4. Louis Fed Retail Sales 8.17.21
  5. ISM Non-Manufacturing PMI 8.17.21