Recent reports show U.S. consumers are spending again; some are actually even ditching the whole discount mentality in favor of luxury brands, while others are making long-delayed big-ticket purchases.
Individual spending rose for the sixth consecutive month in April, this time by 0.6%, or $36 billion. Personal income was up 0.3%. U.S. gross domestic product climbed at a 3.2% annual rate for the first three months of 2010, and U.S. factory output has risen.
"A lot of manufacturers may be struggling to keep up with demand," Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, told Bloomberg News. "We're seeing clear demand improvements from both consumers and businesses that should provide a strong tailwind for several months at least."
The shift from buying cheaper necessities to comfortably splurging is shown in strong quarterly numbers from Whole Foods Market, Inc. (Nasdaq: WFMI) and Saks Inc. (NYSE: SKS). Whole Foods' quarterly profits doubled from the same period a year ago, while Saks reported a profit of 12 cents per share – higher than the predicted 5 cents per share.
Whole Foods products offer consumers a break from pinching pennies while not viewed as an out-to-dinner splurge. Consumers are putting themselves out there a little more and feel more comfortable buying some higher-end foods – and now the company's stock has gone up 83% since May 2009.
Discount leader Wal-Mart Stores Inc. saw its shopper traffic decline, saying more affluent customers are not as keen on bargain-hunting and are returning to more-upscale department stores such as arch rival Target Corp.
Businesses such as jewelers and travel agents are benefiting from this growing willingness to spend.
But don't misunderstand: Although U.S. consumers are venturing back from their spending hiatus, they remain cautious buyers.
"Today if they buy, they are not willing to be embarrassed by overpaying," Jane Bayard, executive vice president at Warburg Realty Partnership of Manhattan, told The New York Times. "There were times in 2007, for example, when there were multiple offers and people paid millions over the asking price. Today, nobody wants to be the last monkey in the tree."
We want to know where you fit into retail's re-emergence…
That brings us to next week's Money Morning Question of the Week: What is your consumer-spending outlook for the rest of this year? What are you seeing? Compared with this time last year, has consumer-shopping activity picked up in your household or community? Have you adjusted your personal shopping habits? Why or why not?
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News and Related Story Links:
U.S. Factory Orders Rise 1.3%, Sales Jump Most in Two Years
- The New York Times:
The Well-Off Are Spending Again – but Carefully
Wal-Mart beats Street but warns on outlook
Whole Foods profit leaps, outlook raised
Saks beats Street on reduced discounting
- Money Morning:
Government Reports Show Consumer Spending Fueling Economic Recovery
- Money Morning News Archive:
Question of the Week Feature