Spending and income

The willingness and ability of consumers to spend money is another indicator of the state of the economy. Falling incomes can predict a pullback in consumer spending, while shifts in how much money consumers are spending (or where they are spending it) signals to the stock markets where both opportunity and danger lie.

Spending and income data can inform the markets as to where the economy and business cycles are headed, or if demographic shifts are happening that may have an effect on different market sectors over the long term.

For example, increased health care expenditures could indicate that a shift in spending is occurring because of an aging population. Certain stock market sectors could benefit from this shift, while other market sectors may experience a decline because the tastes and needs of an older population will differ from that of a younger one, especially in the areas of discretionary spending on consumer goods and health care.

Since Canada and the United States have a very close economic relationship and are major trading partners, the state of consumer spending and household income in either country has an effect on both sides of the border. Statistics Canada compiles and publishes data on spending and income in Canada. Industry Canada publishes useful analysis on consumer spending in Canada. The U.S. Bureau of Labor Statistics publishes the Consumer Expenditure Survey, which covers both spending and income, and the U.S. Census Bureau publishes surveys of income.

Keeping an eye on income levels and spending patterns can give investors a “heads up” on the prospects for certain stocks and market sectors, especially when it comes to companies that are highly sensitive to consumer spending.