Consumer spending increased appreciably last month, ahead of estimates and up significantly over December’s figures. Meanwhile, GDP was revised upward in the second estimate though consumer spending dipped marginally in the report. However, digging deeper into the GDP report, we can see that spending has shown a significant improvement from 2014 levels.

These reports indicate the consumer’s spending power has increased significantly. As a result of higher purchasing power, restaurant sales are projected to move upward this year. Adding stocks from this segment to your portfolio makes for a prudent option at this time.

Spending Pace Hits 8-Month High

A 0.5% increase in personal consumption during January was the fastest experienced over the last eight months. According to a report from the Commerce Department, income also increased at 0.5%, the tenth consecutive time it has moved upward and the highest since Jun 2015. Together, these metrics indicate how the consumer’s spending capacity has grown.

In December, personal spending had increased by only 0.1%. Additionally, January’s increase was higher than the consensus estimate of a 0.3% increase. The identical increase in income was supported by a 0.6% rise in wages and salaries during January. In December, wages and salaries had increased by only 0.2%. The jump experienced in January can be attributed to the effect of a hike in minimum wages. 

GDP Revised Upward

According to second estimate data released simultaneously, fourth quarter GDP increased at 1%. This is an improvement over the initial estimate of a 0.7% rise. However, the upward revision is being attributed to a similar revision in the value of inventories. Inventories increased $81.7 billion, higher than the prior estimate of $68.6 billion.

Additionally, consumer spending for the quarter was revised downward to 2%, from the earlier estimated pace of 2.2%. However, personal consumer expenditure increased by 3.1% over 2015, compared to rises of 1.7% and 2.7% in 2013 and 2014, respectively. Further, disposable personal income rose 3.4% in 2015, compared to a 2.7% increase in 2014 and a 1.4% decline in 2013.