Trends in consumer spending: Growing confidence amid constraints

Several measures of consumer appetites are showing signs of strength. These are being offset by new realities that have transpired in the wake of the Great Recession, such as an emphasis on savings and a lower propensity to take on debt. Portfolio manager Kent Madden highlights several relationships that are in play, describing how they balance each other out and how they affect consumer activity at the cash register.

Consumer confidence

Recent measures of consumer confidence have indicated enthusiasm not seen since before the Great Recession. While the indicators have been somewhat erratic in certain cases, they have generally continued to show improving readings. The positive trends depicted in the data have historically translated to sustained periods of healthy consumer spending.

Source: The Conference Board.

Household spending and earnings: Recent gains

Household spending and earnings: Recent gains

The average U.S. household saw consumption outlays of $53,495 in 2014, a 4.7% increase from personal consumption expenditures in 2013. During the same period, average household income increased by 4.8% to $66,877. *

Personal savings rise, constraining spending gains

Personal savings rise, constraining spending gains

However, we have not seen overall personal consumption increase at the same pace as disposable income. An important factor here has been that the amount of personal saving has remained steady, averaging 4.8% over the past 24 months. It appears that today’s consumer is saving more consistently, particularly when compared to pre-recession levels.

Source: U.S. Bureau of Economic Analysis. Monthly data, personal saving as a percentage of disposable income, seasonally adjusted.

Consumers’ changing attitudes toward debt

Consumers’ changing attitudes toward debt

When analyzing consumer debt as a portion of disposable personal income, we have seen a steady decline from the highs posted in the mid-2000s. This trend suggests that in addition to saving, consumers are using available cash to pay down debt (versus taking on new debt).

Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax (total debt balance, housing and nonhousing.) U.S. Bureau of Economic Analysis (disposable personal income, billions of dollars, and seasonally adjusted annual rate.) Quarterly data.

Personal consumption expenditures (PCE)

Personal consumption expenditures (PCE)

Certain costs are limiting the consumer’s willingness to spend, while other cost-related pressures are easing. For instance, healthcare spending as a percentage of total expenditures has increased from 14.9% 15 years ago to 16.7% today. The increasing cost of healthcare, and the fact that it is a necessary service, is cutting into other areas of potential consumer spending.

Gasoline spending

Gasoline spending

Many analysts have expected cheaper gasoline prices to boost other areas of consumer spending. According to some estimates, the average household will spend 26% less on gasoline in 2015 than in 2014. Overall, this chart suggests that as consumers have paid less for fuel, they have spent some of their savings in select retail industries.

Automobile versus light trucks

Automobile versus light trucks

In addition, as the price of gasoline has fallen, buyers of new vehicles have shifted their buying habits. Consider that less than three years ago, with gasoline at $3.67 a gallon, the sales split between automobiles and light trucks was 50-50. More recently, with gasoline at $2.29 a gallon, automobile sales have declined to represent 43% of total sales, while light trucks have increased their share to 57%.

Sources: U.S. Bureau of Economic Analysis and U.S. Energy Information Administration.



As shown in the preceding slides, several factors are influencing the direction of consumer spending. On the positive side, consumer sentiment is trending upward, which typically bodes well for future spending activity. However, smaller appetites for debt, together with higher savings rates, and more focused spending are factors that we will continue to monitor through our research process. Overall, we retain our bias toward economically sensitive areas of the market, including those that may feel the effects of a healthier consumer.

Launch slideshow

Charts are for illustrative purposes only.

The views expressed represent the Manager's assessment of the market environment as of December 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.


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