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BizReport : Research archives : June 20, 2016

Expert: Increase in spending positive

In May, the US Commerce Department released new spending numbers indicating an increase in spending. While the increase (1% MoM) isn't huge, it is the strongest increase in nearly six years, and according to one expert, a positive sign for merchants.

by Kristina Knight

With consumer spending up, many merchants are hoping to capitalize, and increase their summer revenue lines. First, however, the impetus behind the growth must be explained.

"Data from the report suggests that rising incomes and strong house prices had a positive impact on increasing consumer spending, particularly automobiles," said Mike Elmgreen, CMO, Handshake. "That translates into better immediate sales for retailers and a reduction in inventories at retail, which we are seeing in the latest numbers. Wholesale inventories have been flat for several quarters, but if consumer spending continues to expand, inventories for both retailers and wholesalers will need to expand to meet demand. This means that business purchasing will increase, too, providing a boost to the economy."

Looking specifically at the growth, Elmgreen believes it is a positive sign, and notes that many online merchants are seeing revenue that outpaces traditional channels.

"Purchases of nondurable goods grew 1.4%, so revenue is higher and inventories are a bit lighter than usual. Retailers, online and offline, are likely to take a continued conservative approach to managing inventories until the consumer expansion demonstrates consistent momentum. With so much uncertainty right now, from interest rate rises, to Brexit, to the U.S. Presidential election, retailers will want to see consistent quarter-over-quarter consumer spending growth before ramping up inventories," said Elmgreen.

More from Elmgreen and Handshake later this week, including how the increase in May spending could impact back to school and holiday spending.

Tags: consumer spending, consumer spending trends, ecommerce, Handshake

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