The U.S. economy is generally believed to be substantially consumer driven. Accordingly, trends in consumer spending are closely watched by investors and economists. With an economy that is largely dependent on consumer spending, it is important to recognize that an individual consumer can spend only so much.
Recently reported retail sales figures have been disappointing. Many factors are being cited, including modest wage growth, savings rates that are already low and consumer debt that continues at high levels.
As a result, the path towards increased consumer spending may be somewhat limited. Greater business investment, increased job growth and stronger wage gains would be constructive. However, job growth is difficult, in part due to a skills shortage, and while wage gains would be clearly constructive on their own, unfortunately, higher wages quickly lead to higher prices as employers respond to cost increases.
Investors should recognize that it may be difficult to sell more and more to the same limited number of consumers. A possible solution would be an increase in the number of consumers. However, U.S. population growth seems to be mired at less than one percent and an improvement does not appear to be imminent.
Perhaps a rational immigration policy might not only address the skills shortage, but also provide some additional consumers and gains in consumer spending?
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®