By Jason Simpkins Associate Editor Consumer spending in the United States rose an unexpected 0.8% in the month of May, the biggest increase since last November, as nearly $50 billion worth of rebate checks were cashed and put to use. Incomes grew 1.9% in May - their biggest jump in nearly three years - and the Commerce Department said rebates fueled a 1% surge in retail sales for the month. However, analysts have been quick to dismiss the figures as an apparition that will dissipate along with government assistance. “This is the tax rebate that you’re seeing here,” Chris Low, chief economist at FTN Financial, told Bloomberg. “It’s a sense of hope, but it doesn’t last. Call it a holiday from reality.” Story continues below… Sign up right now, ...

The NY Times came up with a very interesting way to look at consumer spending. In the long run, consumer spending is a function of consumer income. Though since early 2000 it did not appear to be the case as consumers financed their spending by borrowing against their future income. If you believe that consumer spending is likely to stagnate but the cost of food, healthcare and energy is likely to increase (it did in 2007), then something has got to give.

In other words the income pie is not growing; some slices are expanding at the expense of “X.” And that is the question that this NY Times diagram may help to answer: at the expense of what?

Several categories come to mind right away: new car sales – yes we will be driving older cars (maybe we should look to …

My latest column is up at RealMoney.

I think Rent-A-Center (RCII) can benefit from the slowdown in consumer spending and the tightening of credit standards.

If Rent-A-Center were to receive the same price-to-book multiple as Aaron Rents, it could trade above $28 per share today. While I don’t believe that will happen overnight, over the next five years Rent-A-Center could see high-single-digit earnings per share growth and also expand its price-to-book multiple to the 1.9 level. The combination of earnings growth and valuation expansion could generate annual returns averaging 15% or more.

Here’s how the company scores on the Stock Market Beat models:

Earnings momentum: Positive Earnings quality: Positive Price momentum: Neutral Free cash flow: Positive Return potential: Positive

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

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