US Consumer Spending Isn't THAT Strong: Yoshikami

gpointstudio | E+ | Getty Images

It's clear when looking at the latest retail sales numbers that consumer spending has resumed, albeit at a slow rate. The latest numbers give ammunition to the bulls that the good old days are back. But hold on for just a minute optimists; the numbers aren't THAT great.

Retail sales should be stronger than the current reported numbers. For a recovery, these numbers are weak.

This is not a surprise given high unemployment rates, increased taxes, and a general concern about the strength of the current economic recovery. The consequences of this stumbling recovery in retail sales are significant. Because the United States economy is 70 percent consumption-based, lower GDP rates are likely for the foreseeable future.


Does this mean that one should necessarily be negative about the health of the economy if consumption is weaker than in past recoveries? We do not believe this to be the case.

Lackluster consumption does not mean an end to consumption; dogmatic perspectives often get in the way of a more measured view of issues. One only needs to look at sales of luxury goods from makers such as Tiffany's and other high-end retailers to see that consumption is bouncing back.

A long term metamorphosis is happening right now. In the middle class, consumption is occurring but consumers are seeking better prices for the goods they purchase. Companies like Costco,Wal-Mart, and Family Dollar Stores are capturing more market share as budgets are stretched given today's difficult current economic conditions.

(Read More: 'Coupon Indicator' Points to a Stressed Consumer)

Technology seems to be somewhat immune from spending pullbacks as long as the devices or products offered are innovative. Companies like Microsoft are suffering because consumers are simply unwilling to upgrade software if they do not see a clear benefit.

The investment consequences of this shift in consumption spending means that as investment managers we seek sectors that will likely benefit from a more conservative consumer. Tailwind or thematic investing is a key part of your investment strategy and we believe this to be a prudent strategy.

(Read More: Retail Stocks Propel Market Higher)

Additionally, we believe this method of investing will provide opportunities for appreciation with measured risk if themes are taken into account when investment strategy is developed.

Value and innovation from retailers is no longer optional. It is now imperative in order to capture consumers interest and dollars. Companies that recognize this will be the winners; those that don't are destined to struggle in a more austere environment.
