This Is Why Ford Motor and Home Depot Are on the Upswing


Consumers came out of a bitter winter hungry to spend their growing income on long-delayed purchases with large price tags.

The U.S. Bureau of Economic Analysis just shared some good news about the American consumer. By extension, it's also great tidings for big-ticket consumer-goods vendors such as Ford (NYSE: F  ) and Home Depot (NYSE: HD  ) . Let me explain why.

Workers in America saw personal income increase by 0.5% in March, matched by a 0.5% jump in after-tax disposable income. These are the biggest gains seen in those crucial metrics since last September -- and the metrics rose 0.4% in each of the previous two months.

Consumers are feeling their newfound financial freedom, too. Consumer spending jumped 0.9% in March. While the income gains marked multimonth highs, the spending pace hasn't been this brisk since August 2009.

The throwback to 2009 isn't accidental, either. Durable-goods sales jumped 2.6% in March, driven by strong sales of big-ticket items like cars and home appliances. In summer 2009, that surge rested on the "cash for clunkers" program.

The frisky spending includes some pent-up demand, since many buyers delayed their trips to the car dealership or home goods store until the end of the recent harsh winter. But it's also a strong vote of confidence in the recovering economy.

The big March surge in automobile sales, leaning more toward recreational vehicles than daily workhorses, explains how Ford could overcome the Fimbulwinter to post solid first-quarter sales.

We're still a couple of weeks away from Home Depot's first-quarter report, which will include the home appliance surge in March. Expect a solid report at the least, driven by an undeniable surge in customers' financial flexibility.

Working backward from there, spending can't increase without support from the income side of the equation. Rising wages per person are only part of that metric, with the rest coming from more workers drawing a paycheck in the first place.

That relationship gives us clues on what to expect from next month's personal-income and consumer-spending report. The private sector added 209,000 jobs in March and 220,000 in April. There's no direct cause-and-effect relationship here, but the employment trend provides a strong foundation for another positive tally when the April numbers drop in.

Gross domestic product growth (just 0.1% in the first quarter) might not be where economists would like, but that's not the only report that matters. In short, the American economy is recovering quite nicely as we speak -- soft GDP gains or not.

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