In a global macroeconomic environment fraught with high inflation, consumers are stressing needs over wants, but that's not to say they're abstaining from the latter completely. That's evident in the Direxion Daily Consumer Discretionary Bull 3X ETF (WANT) having risen 70% within the past year.
Despite elevated interest rates and inflation, consumers aren't choosing to avoid spending on nonessentials. In 2023, constant worry surrounded the Federal Reserve's aggressive interest rate hiking that could potentially spin the economy into a recession. Now, that appears less likely, as economic growth continues to hum along despite tight monetary policy conditions.
"The U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%," a Zacks article published in Yahoo Finance confirmed. "On Mar 7, the Atlanta Fed GDPNow tracker forecast a 2.5% growth rate for first-quarter 2024, indicating no chance of a near-term recession."
From a micro level, another reason there hasn't been a profound drop in consumer discretionary spending is the rise of personal income. In turn, this is also benefiting personal expenditure numbers, with both in line with consensus estimates.
"Meanwhile, personal income increased unexpectedly by 1% in January compared with the consensus estimate as well as December’s reading of 0.3%," the report added. "Personal consumption expenditure increased 0.2% in January in line with the consensus estimate."
