Despite the miss, household final consumption expenditure or HFCE saw faster growth of 5.3 percent compared to 4.7 percent in the previous period.
While this is still well below the long-term growth trajectory of 6.2 percent, we are starting to see a slow recovery in household spending on the back of benign inflation and higher household income.
So, what influences HFCE? HFCE includes all goods and services purchased and consumed by households, including but not limited to: food, housing, healthcare, transportation, education, and entertainment.
With consumption being primarily driven by household income and prices, we see multiple positive drivers converging to boost household spending.
Wages and jobs support growth
On the income side, the wage board issued an order in July of last year to increase the daily minimum wage for non-agriculture workers from P610 per day to P645 per day, which increased the spending power of workers.
The labor market also remained relatively tight, which gives workers more leverage to demand higher wages, and unemployment held steady below 4 percent, which indicates that nearly all households have some source of income.
Rate cuts boost households
The BSP also implemented 75 basis points worth of rate cuts in 2024, which would eventually lower the interest rates paid by households for mortgages and other loans, thus increasing their disposable income after these expenses.
On the other hand, the pace of price increases, as measured by inflation, is also continuing to ease, with inflation averaging 2.3 percent in the first quarter of 2025 versus 3.3 percent in the same period last year.
We see HFCE’s pickup in the first quarter of 2025 as a result of these aforementioned factors, and we are fairly certain that these trends would continue to come into play and underpin consumer spending in the succeeding periods.
Meeting targets won’t be easy
Firstly, the Regional Tripartite Wages and Productivity Board (RTWPB) in the National Capital Region (NCR) would start the wage review for workers in private companies by mid-May.
DOLE hinted earlier this month that minimum wage earners in Metro Manila may receive an increase in their daily take-home pay by July.
Second, the BSP now has room for more rate cuts in light of easing inflation and a weaker dollar.
The potential impact of a global economic slowdown on domestic growth also increases the urgency for the BSP to adopt a more accommodative stance.
Following the weaker-than-expected first quarter GDP numbers, the Philippine economy will now have to grow by 6.2 percent in the next three quarters to hit the government target of 6.0 percent growth this year.
Even if the goal is simply to meet analyst forecasts of 5.9 percent growth, the economy will still have to grow by 6.0 percent quarterly to hit that target.
Considering the global macroeconomic headwinds, those growth numbers seem unrealistic without further rate cuts of 50 to 75 basis points from the BSP.
Investors eye consumer plays
So far, the market seems to be slowly pricing in these catalysts and investors are starting to pick up consumer companies like PGOLD, RRHI, URC, and DNL. Foreign investors, in particular, are eager to get into companies that have domestically driven revenue streams and would benefit from a weaker dollar.
These consumer names fit that description to a tee, and their first quarter 2025 earnings already showed promising results with volume-driven revenue growth and margin improvements.
Additionally, they were mostly successful in their efforts to win back market share that they lost to downtrading during the previous high inflation years, as value-pricing and increased advertising and promotion spending contributed to strong average revenue growth of 14.8 percent.
Moving forward, volume-driven growth will likely be the ‘buzzword of the year’ for the sector as they strive for higher volumes coupled with sustainable margins to capitalize on improving consumer spending.
Financial market recommendations and comments on InsiderPH News belong solely to the analysts and institutions making them. They do not represent buy, sell or hold recommendations of InsiderPH News. Investments held by analysts or institutions may influence their recommendations. Investors should conduct their own research and carefully evaluate all relevant market information before making investment decisions. As always, the past performance of any investment does not guarantee its price appreciation in the future.
