US consumers no help to market: Bernstein

NEW YORK (Reuters) - A resilient U.S. consumer has failed to help discretionary stocks keep up with the broader market and the sector looks set to lag even further as Americans feel the pinch of higher interest rates and energy costs, Merrill Lynch's chief investment strategist said on Monday.

Consumers kept up vigorous spending last year even amid a steady stream of Federal Reserve rate hikes and climbing energy prices, but that did nothing to help consumer discretionary stocks gain a foothold, Merrill's (MER.N: Quote, Profile, Research, Stock Buzz) Rich Bernstein at the Reuters Investment Outlook Summit in New York.

In 2005, consumer discretionary finished in second-to-last place among the 10 Standard & Poor's major industry groups, behind only the telecoms sector. Year-to-date, the consumer sector is in seventh place, down 0.3 percent.

It could be worse if consumers weren't so attached to their creature comforts.

"People's standard of living has been falling and they've been desperately trying to keep up," Bernstein said.

But spending on non-discretionary items such as interest payments, health-care expenses and energy costs is already at an all-time high as a proportion of income, and is set to rise further, Bernstein said, leaving Americans with less and less disposable income.

As to when consumers will finally capitulate, relax their living standards and reign in spending, Bernstein doesn't predict any sudden drop-off.

"People are looking for something dramatic, but the economy doesn't work that way. It's usually very slow and gradual," Bernstein said. "It's like watching paint dry, but behind the scenes the consumer's paint is drying."