There’ll be headline ugliness on Thursday bc of the holiday calendar shift, but the Macro consumer spending setup is positioned very favorably for the next quarter. Potential good news – for the retailers that have invested to capitalize on it.
Some interesting takeaways from today’s PCE data.
1) With 2.6% growth in personal income, we saw the 12th sequential deceleration in the rate of personal income growth.
2) Over that 12 months, the aggregate personal tax rate is up by 1 full point. That’s holding steady at 11.1%.
3) So with income down by a full 220bps, and taxes up by 100bps, one would think that consumption must be down by 320bps, right?
4) Nope. It’s +4.0%, versus +3.5% a year ago.
5) We could nit-pick and point to the 30bp sequential erosion in the growth rate in consumption. But the reality is that the US consumer acted in the past year exactly like…well…the US Consumer. The personal savings rate oscillated between a 150bp band, and now sits at just 3.8%.
6) Logically, one could make an argument that with Personal Income compares getting very easy this Spring, the savings rate will creep higher. Not so. History shows us that the savings rate – or the ‘Fear Index’ as we’ll call it – only goes up when consumers are afraid to spend.
7) Given that the average Joe has no reason to be more afraid today – especially with the equity market having rallied – our sense is that any boost in the rate of personal income growth will be spent.
8) Definitely a bullish setup for the next quarter – for those retailers that are prepared to capitalize on it.