Can the consumer rescue the recession-hit US economy?

According to Stephen Weeple, head of US equities at Standard Life Investments, the fact that commodity prices have fallen so dramatically since the summer could have a knock-on positive effect for other sectors.

"While some of the profit taking in commodity-related shares is understandable given the rapid run up in prices this year, the late-summer sell-off has not discriminated between companies reporting excellent results and those whose operating performance has been less exciting," says Weeple.

Weeple says: "The impact on other sectors is fairly obvious - airlines and auto stocks are up, while consumer goods companies are also higher. Sectors enjoying an immediate gain include airlines, where jet fuel prices have moved in lock-step with crude prices, both on the upside and downside. Auto stocks too have been recent beneficiaries of gasoline prices falling in line with crude oil. In contrast, energy stocks have felt the immediate hit from lower crude oil prices."

With the US now almost certainly in recession there is little to suggest that the consumer will be able to help boost the economy anytime soon, though Weeple points out that lower energy prices could feed through to the consumer in time to boost Christmas spending.

"One positive development for the consumer and the US economy is that we expect lower gas prices to come through before the depths of winter," he says.

"It would be a timely boost to the struggling US economy if this development supports discretionary consumer spending and could support the retail sector through the crucial winter period."

Tom Walker, manager of the Martin Currie North American fund, on the other hand remains cautious on the US consumer and his reduced his fund’s exposure to consumer discretionary stocks while increasing its weighting to consumer staples. This is in part due to a cautious approach to the stockmarket in general, brought about by the deepening of the financial crisis.

"Financials is still a significant underweight and our views on this are clear: none of the bailout initiatives have convinced us that anything but a very difficult environment awaits this sector for several quarters yet," he says.

Overall, Walker says the market weakness, which has resulted in a flight to quality into mega-caps and healthcare, has been surprising.

He adds: "Stocks enjoying positive change have underperformed those stocks where the negative change is so significant that investors are betting it cannot get any worse. If the world slips into a severe recession, companies with visible earnings and positive change are likely to see a deterioration in 2009 or 2010. That is what the market is beginning to discount.

Walker adds: "If such a recession is avoided, we believe these companies will outperform as they surprise the pessimistic assumptions now in place."