US consumer sector is a safe bet
Consumer spending in the US grew in the third quarter at a 3.2 per cent rate, dwarfing the rate of inflation.
New York - Rising wages, low interest rates will encourage people to spend more in 2016.
Published: Sat 21 Nov 2015, 11:00 PM
Last updated: Sun 22 Nov 2015, 8:56 AM
American consumers are spending. That's the message of top fund managers and strategists, who say consumer resilience in the face of a slow-growing economy may make the consumer sector a good place to invest in 2016.
"The consumer says, we continue to spend money, we're happy to spend money, when we're depressed we spend money," said Ed Yardeni, president of Yardeni Research in New York. "The world is, once again, very dependent on the American consumer."
Participants at the Reuters Global Investment Outlook Summit said falling unemployment, rising wages, low oil prices, cheap imports and low interest rates throughout 2016 will encourage consumers to open their wallets more.
A series of high-profile earnings disappointments among retailers, particularly clothing sellers, and US government reports suggesting spending has abated has worried some investors. But participants at the Summit said changing consumer habits are a reason apparel companies have been hit, while other companies have not.
"The question for me is simple: Why are people not buying clothes?" said Mario Gabelli, who oversees $39.6 billion at Gabelli & Co in Rye, New York. "Is it the weather? Is it tourism? Retailers like O'Reilly are doing fantastic, retailers like Home Depot are doing fantastic."
O'Reilly Automotive, which has more than 4,400 auto parts retailers, is one of Gabelli's picks, even after its share price had more than doubled since the start of 2014.
In the minutes from its latest meeting, the central bank signalled that a December interest hike is possible so long as it remained confident the labour market was healthy, wages will increase and inflation can rise toward the Fed's preferred level.
Dean Maki, chief economist at Point72 Asset Management in Stamford, Connecticut, noted that consumer spending grew in the third quarter at a 3.2 per cent rate, dwarfing the rate of inflation.
"That's precisely what should happen when gasoline prices fall: headline inflation declines and real spending grows faster," Maki said. "Consumer spending continues to be the main driver of expansion."
Margie Patel, senior portfolio manager at Wells Capital Management, expects wages in 2016 to rise about 1.5 percentage points faster than inflation.
The Boston-based manager said rising wages could prompt consumers to spend more online, helping brick-and-mortar retailers such as home improvement specialist Home Depot that are ramping up their Internet presence.
She was also high on cars. Annual sales from General Motors and others are potentially on track to eclipse the approximately 17.35 million units sold in 2000. - Reuters