Recent reports show U.S. consumers are spending again; some are even ditching the whole discount mentality in favor of luxury brands and making long-delayed big-ticket purchases.
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.
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 hiatuses, they remain cautious buyers.
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We Want to Hear From You: Are U.S. Consumers Finally Willing to Spend Again? Are You?
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."
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."
Bulls Vs. Bears: Who's Winning Wall Street's Biggest Battle?
Two big economic reports dampened the mood on Wall Street in the past week: The Standard & Poor's/Case-Shiller Home Price Index and the Conference Board's Consumer Confidence Index.
But despite what the bears would have you believe, several strong companies have shrugged such data aside and broken through to new highs. In fact, long-term, we continue to see evidence that a robust business-led recovery is underway.
But despite what the bears would have you believe, several strong companies have shrugged such data aside and broken through to new highs. In fact, long-term, we continue to see evidence that a robust business-led recovery is underway.
To find out what companies are leading a new bull market click here...
Investment News Briefs
With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. Top AIG Lawyer Quits Over Pay Restrictions, Gets Millions in Severance; Biggs & Faber: S&P 500 Has Room to Run, Dollar Will Rebound; Consumer Confidence Rises for Second Month in a Row; U.S. Home Prices Unchanged in October; China Audit Finds $35 Billion in Fraud by Officials; GM Holds Fire Sale on Remaining Pontiacs and Saturns; Oil Moves Closer to $79 Outgoing American International Group Inc. (NYSE: AIG) General Counsel Anastasia Kelly will get "several million dollars" in severance after she quit over federal pay curbs, people familiar with the matter told The Wall Street Journal . Kelly was entitled to the money under AIG's severance plan, which says certain executives can resign and collect severance if their pay is significantly reduced, the people said. Kelly's pay stood to take a large hit after the Obama administration "pay czar" Ken Feinberg capped annual salaries at $500,000 for executives at companies that received billions in bailout money. The exact amount of severance was not specified. Hedge fund manager Barton Biggs and contrarian investor Marc Faber both said in an interview with Bloomberg Television that the dollar and the U.S. equity market may gain up to 10% in the next two years. "History would suggest that after such a severe economic shock like we've just had that the odds are that we're going to have a pretty good burst of growth in 2010, 2011," Biggs said. "I don't see any reason why we can't have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10%." Both Biggs and Faber recommended investors buy U.S. stocks on March 9, 2009 when the Standard & Poor's 500 Index was at its lowest point in 12 years.
Drop in Consumer Spending Could Spell Trouble for Economic Recovery
U.S. consumers curtailed spending in September for the first time in five months the government reported on Friday. Combined with a weak report on consumer sentiment, it increased fears the economic recovery could falter as government stimulus spending winds down, sending the stock market into a downward spiral.
The news sent the Dow Jones Industrial Average plummeting by 294.85 points, or 2.51%, on Friday to close at 9,712.73. Meanwhile, the Standard & Poor's 500 Index fell by 29.93 points, or 2.81%, to close at 1,036.18 and the Nasdaq Composite Index plunged 52.44 points, or 2.5% to close at 2,045.11.
The Commerce Department said purchases fell by 0.5%, after gaining 1.4% in August, matching the median estimate of economists surveyed by Bloomberg News. But consumers continued to increase their savings even as their incomes dropped.
The news sent the Dow Jones Industrial Average plummeting by 294.85 points, or 2.51%, on Friday to close at 9,712.73. Meanwhile, the Standard & Poor's 500 Index fell by 29.93 points, or 2.81%, to close at 1,036.18 and the Nasdaq Composite Index plunged 52.44 points, or 2.5% to close at 2,045.11.
The Commerce Department said purchases fell by 0.5%, after gaining 1.4% in August, matching the median estimate of economists surveyed by Bloomberg News. But consumers continued to increase their savings even as their incomes dropped.
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The Reuters/University of Michigan's consumer sentiment index rose to 70.6 in late October, up from 69.4 earlier in the month. However, that's still down from September's reading of 73.5.