That’s exactly what the U.S. consumer is doing for the economy. In a $22 trillion cauldron, consumption makes up about 68%, or $15 trillion of U.S. GDP. So, as much as Trump talks up manufacturing or coal or steel, it’s everyman (and woman), out there spending, day in and day out, that is driving economic growth. But they’re not going crazy. On the heels of the worst economic slap in the face in a number of generations, the American consumer is acting responsibly, saving at a reasonable level and limiting debt accumulation. It’s just that there is a very good backdrop to allow consumption to flourish; employment is at multi-decade highs, real wages are rising (finally), and consumer confidence is high.
As an indicator of economic conditions, retail sales are positive, not as robust as early in 2019 but still pretty good. Housing numbers haven’t been this good in almost 15 years, as low interest rates have further improved affordability to the bolster the already strong economic conditions noted above. But in the midst of all of this good news is a warning.
Times are changing, and the old bricks and mortar stores that have thrived since the end of WWII are giving way to e-commerce giants like Amazon. Established leaders such as Walmart are scrambling to compete with their own e-commerce offering. In fact, when you dissect the growth of retail spending you find that the e-commerce space, which makes up about 11% of all retail sales, accounts for virtually 100% of the growth.
So, as an investor, pick your spots. Look for companies with an advantage or those that have a catalyst for growth. And pay attention to valuation. If the anticipated growth has already been built into the stock price, you may be buying into an investment with more downside risk than upside potential.Back
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