After four dismal quarters, many were beginning to fear that the American consumer was as dead as a dodo. Fortunately for us all, it now appears the consumer is more of a phoenix. Personal consumption expenditures (PCE) appear to be rising from the ashes - increasing by 2.2 percent in the first quarter. It was the strongest quarterly showing since the first quarter of 2007 when PCE grew 3.9 percent.
The consumer spending data, compiled by the U.S. Bureau of Economic Analysis, is part of the overall release of Gross Domestic Product which measures the nation's output of goods and services. The headline GDP number showed a decline of 6.1 percent--much worse than the -4.3 percent most economists had expected. However, when you dig deeper into the data, it is clear that the situation is much better than the headline number would suggest. Here are some positives:
- As mentioned, consumer spending performed very well.
- Government spending showed a decline--something we know is going to change in the very near future.
- Exports were down, but they outperformed imports continuing a favorable trend.
- Inventories were down by 38 percent indicating that companies will have to begin building them again leading to higher future levels of production.
In a not-so-happy vein, investment was down across the board declining by 51.8 percent. This is the worst showing since Q1 1975 and the second worst quarter since the government data series began in 1947. Obviously, business investment will have to pick up before this recession ends, but I expect a resurgence of consumer activity will convince companies that they should ramp up their investments in inventories, equipment and software pretty quickly.
This is very bullish news for equity markets and underscores the durability of the rally we have experienced since March 9th.