When consumers receive an income, those funds can go into savings or spending. Consumer spending is the measurement of funds dispersed (not in savings) and that can go into goods and services that consumers deem warranted. This can include durable goods, such as washing machines, and non-durable goods, such as food. As the U.S. economy is comprised of over 70% consumer spending, this is a very important piece of economic data.
The modification to the current one-child policy, which I recently discussed in these pages, will help create an even bigger middle class in the country that will drive up the demand for goods and services. (Read “China’s Expected Baby Boom a Boon for U.S. Business.”)
The Organization for Economic Cooperation and Development (OECD) has become more bullish on China, and predicts Chinese gross domestic product (GDP) growth will rise to 8.2% in 2014, driven by a rise in domestic consumer spending. (Source: “OECD sees China growth accelerating in 2014,” China Daily, November 20, 2013.) The OECD even goes as far as to say the Chinese economy could surpass the U.S. economy to become the world’s biggest economy by 2016. While this is faster than I expect, it’s clearly not impossible, given the rise in income levels and spending.
The middle class in China will drive the economic engine of the country, unlike what we are seeing in America with the declining spending prowess of the middle class. In fact, what we are seeing in China is similar to the power of the U.S. middle class that drove the Industrial Revolution in the late 1800s and early 1900s.
If China can emulate what happened in the U.S. then, there could be some golden years ahead for the Chinese economy.
To play the expected rise in consumer spending in China, which is increasing at double-digit rates and is likely to … Read More
Black Friday is less than two weeks away, and I sense there’s increasing nervousness in the retail sector. For some, this weekend of spending accounts for over 50% of annual sales.
Macy’s, Inc. (NYSE/M) reported a strong fiscal first quarter in which it beat the Thomson Financial earnings-per-share (EPS) consensus estimate by $0.08 per diluted share or 20%. But while Macy’s offers investors some hope, the good news was short-lived, as the stock’s results may have had more to do with the company’s own success than a strong retail sector.
Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) followed suit with soft reports that left investors worried about the strength of the holiday shopping season.
In the case of Wal-Mart, the world’s largest retailer reported a 0.1% decline in comparable U.S. store sales (without fuel) for the 13 weeks ended October 25, down from 1.7% growth a year earlier. For the 39 weeks ended October 25, Wal-Mart saw its U.S. sales contract by 0.4%, versus 2.4% growth in the year-earlier period. The result from Wal-Mart raises some red flags for the retail sector as we head into what is the most critical shopping time of the year.
Mike Duke, president and CEO of Wal-Mart, noted in the company’s quarterly report that the retail sector is “competitive.”
Wal-Mart also doesn’t appear to be too optimistic going forward and that makes me nervous, since the company is a good barometer … Read More
More gains ahead—or at least I’m sensing the stock market has more room to advance, especially with the bullish investor sentiment that has characterized the majority of the year continuing to hold.
The S&P 500 and Dow Jones Industrial Average continued to advance to record heights last Wednesday and again on Thursday. The near-term trend is pointing higher. The S&P 500 will likely break 1,800 prior to the year-end, unless consumer spending tanks.
The stock market even appears to have discounted in some tapering in December or January. Traders realize the tapering is coming and they’ve come to terms with that—as long as it’s slow and the economy delivers stronger and steady growth. A slight rise in long-term rates and the 10-year bond yield is not going to hurt the stock market that much.
The rise in the Dow Jones industrials continues to be confirmed by an associated rise in the Dow Jones Transportation Average, as reflected on the chart below. Both the industrials (red candlesticks) and transportation stocks (green line) are trending higher, and that means more gains ahead.
Chart courtesy of www.StockCharts.com
Fighting the trend is fruitless at this point. The breakout appears to be holding, as indicated by the blue oval on the chart above. Now we could see a correction down to around 14,700, but this would be a buying opportunity, as I sense the stock market will continue to edge higher. (Read “Vulnerable Key Stock Index May Be Signaling Upcoming Buying Opportunity.”)
As we move toward year-end and into 2014, I expect the stock market to advance higher. So make sure you are … Read More
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