Video: Consumer Spending Factors Mostly Point Positive


Do conditions favor an upswing in consumer spending? Portfolio Manager Barbara Miller provides her take.

Additional Q&A

Are mergers and acquisitions a major focus in the retail industry?
It depends.  Retail mergers and acquisitions (M&A) can be successful when a sub sector is mature – this happened within department stores and more recently, auto parts, and we’ve just seen an announcement within the dollar store sector.  That said, integrating two operations and cultures is challenging and store leases can be expensive to terminate, if necessary.  M&A has proven more difficult when retailers reach across borders or into different sub sectors.  From a channel development perspective, we’re seeing some traditional retailers augment ecommerce capabilities via acquisition.   Finally, over the last several years we’ve seen private equity acquire fundamentally challenged, publicly-traded specialty retailers, but there is no pattern to these transactions -- one does not necessarily beget another. 

Do conditions favor an upswing in consumer spending?
Consumer spending is two-thirds of GDP, and employment is the most critical factor that drives consumers to feel confident to spend. We've seen an upswing in job growth, and that's a positive factor that can drive consumers over the medium term to be spending a little bit more. We've also seen housing rebound, and that's driven an improvement in household net worth, which is a positive factor. And finally, we've seen credit start to improve, as well, although consumers are not going to access credit to the extent that they accessed it in the prior decade before the financial bubble burst. That said, it's very difficult to paint the consumer with a broad brush. The economic recovery has been concentrated at the high end, where we've seen spending accelerate at a much greater pace, whereas consumers at the medium and lower end of the earning spectrum have been quite stagnant, and that's a factor that we take into consideration as we look at which retailers in which to invest. Overall, we expect spending to grow at a modest pace, 3% or so. However, we look for companies that can gain market share and grow at a much greater pace as a result.


Views are as of July 24, 2014 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Barbara E. Miller
Barbara E. Miller
Portfolio Manager, Senior Investment Analyst