The Rising Spending Tide Lifting Nearly Every Boat
August 30, 2018
In another sign that the bull market, already the longest in United States history, is charging ahead, US households showed solid gains in income and spending.
The data, which the government released Thursday, showed household incomes grew 0.3% and spending grew 0.4% in July, similar to the growth rates in both May and June. While that doesn’t seem like a lot, it suggests that consumers, whose spending accounts for roughly two-thirds of US GDP, still have capacity to drive the economy higher. “The US consumer is acting very confidently, and that confidence is translating into sales,” says Chad Astmann, senior client partner and global co-head of asset and wealth management with Korn Ferry.
While some economists have been predicting an eventual economic slowdown, this and other data points show little indication of a coming bear market or recession. In the second quarter, the economy overall grew 4.1%, double the growth rate in the first quarter and the biggest gain in nearly four years. The income and spending projections for July put the economy on track for even more growth in the third quarter. Plus, consumer confidence is close to an 18-year high.
The result of all this activity is soaring stock prices and rising corporate valuations. Last week, for instance, Target, Kohl’s, and other retailers posted some of their best sales and earnings figures in years. “Consumer spending figures directly impacted these increases,” says Denise Kramp, a Korn Ferry senior client partner and leader of the North American Retail Sector practice. Consumers are also spending more on travel and eating out, as per last month’s spending report.
Increased sales and robust stock price valuations are giving CEOs headway with boards and investors to pursue strategic growth rather than retrenching. Corporate leaders already have been reevaluating strategic priorities and approaches to risk in this new normal. Organizations, driven in part by changes in tax laws, have repatriated offshore cash and used it to increase stock buybacks, fund dividend payments, and finance acquisitions. “Instead of focusing on fixing every small margin compression issue to save pennies, leaders can now relax a bit and think and act on the bigger picture,” Astmann says.