With concerns about lingering high unemployment, budget deficits and the general malaise with regards to the U.S. economy, consumers aren't spending as much as they traditionally would. The Great Recession took thriftiness to new heights, and it seems that Americans are sticking with the will to save. Analysts at JPMorgan estimate that consumer spending to grow at an inflation adjusted annual rate of just 2.6% this through 2010. This number is far lower and weaker than during prior recession recoveries. With consumerism a major part of the American economy, investors do have the right to worry about what a "lack of spending" means for the fate of the U.S. financial system. In spite of this, a new breed of consumer is beginning to pick up the pieces and spend.
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Developing and Emerging Markets to the Rescue
The newly-minted middle class in emerging nations is driving spending on beer, electronic goods and automobiles. Currently, there are about two billion middle class citizens within emerging markets, and they spend around $6.9 trillion each year. Analysts estimate that number will grow to nearly $20 trillion in spending over the next decade. A new report from McKinsey & Company found that middle class citizens of these nations seek to own both products by international brands and localized goods.
The decline in the greenback's value through the past decade has made U.S. goods cheaper for foreign consumers. To meet this increased demand, U.S. companies have been boosting their exposure to these nations. Harley-Davidson (NYSE:HOG), for example, is planning to start selling high-end motorcycles in India later this year. Exports from the United States have been growing steadily throughout the year, and the Obama Administration has set goals of doubling U.S. exports over the next five years. This increase could create nearly two million jobs.
Playing the Global Consumer
During the recession, developing market consumption surpassed United States spending for the first time, equating to nearly 32% of global consumption. This compares to 28% for the United States. To play this growing trend in increased world consumption, investors have several avenues to pursue. Large multinationals such as Colgate-Palmolive (NYSE:CL), which sells more toothpaste in Latin America than it does here, make good choices for portfolio. Investors can also use the wide swath of exchange-traded products to bet on the new consumers.
Investors wanting to play an overall growing consumer market can use both the iShares S&P Global Consumer Discretionary (NYSE:RXI) and iShares S&P Global Consumer Staples (NYSE:KXI). These two ETFs cover a wide swath of international and multinational shopping stocks. Both should do well over the longer term as more people in emerging markets begin to spend.
U.S. exports represented almost 26% of U.S. manufacturing shipments at the end of 2009. Shipments to emerging nations of industrial goods have pick of the slack of domestic demand. The Industrial Select Sector SPDR (NYSE:XLI) is still the best catch all investment for the industrial sector. Investors can use it to play the trend in U.S. global exports.
Already overtaking Japan as the second largest economy, China is set to become the largest by 2020. Increasing prosperity within its middle and upper classes has created a huge demand for luxury goods. Within five years, analysts predict that demand for luxury automobiles within China will increase to 800,000 cars annually. The Claymore/Robb Report Global Luxury (NYSE:ROB) follows 32 firms dedicated to high-end and luxury offerings, including LVMH Moet Hennessy Louis Vuitton (OTCBB:LVMHF) and Polo Ralph Lauren (NYSE:RL). The Global X China Consumer ETF (Nasdaq:CHIQ) can be used a Chinese-based play on growing consumption throughout the nation.
The Bottom Line
With worries about the health of the U.S. economy still persisting, the American consumer has kept his thrifty ways. However, a new crop of middle-class citizens in emerging nations is ready to pick up the slack. Investors wanting to play this growth of a new consumerism can do so with any of the exchange-traded products listed above. (For more, see Investing In China.)
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