Consumer Confusion

The division of data between consumer sentiment and retail sales seems to say consumers are confused. What really gives? Well, we solve that mystery in the paragraphs that follow.

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Consumer Confusion

The past couple weeks of data have offered an image of what appears to be an improving consumption environment. However, last Friday's Reuters/University of Michigan Consumer Sentiment Survey produced a conflicting report showing a souring of sentiment. We want to make some sense of this stark contrast for you in this column.

Two weeks ago, individual retailers reported simply astounding Chain Store Sales data. Many retailers noted double-digit sales gains in March from stores open at least a year. For instance, Macy's (NYSE: M) sales rose 10.8%, and Target's (NYSE: TGT) sales increased 10.3%; the entire retail spectrum reported similar results. We hope you see that it is really a blessing to have variation as pronounced as it was in this data. Sales were so over the top that an anomaly should be clearly understood to be behind the activity.

The simple compound behind the astounding results consisted of roughly three components, in our view. First, the Easter holiday fell a week earlier this year than last year, and both Eastern and Western Christians celebrated the holiday simultaneously this year. There is a flux of shopping that occurs ahead of the Easter holiday. Many American prepare feasts for family get-togethers, and extraordinary shopping occurs to stock for it. Because this year's Easter fell in the first week of April, much of the preparation occurred in March, versus April last year. We will know for certain if this was truly the case when April's data is reported, as it should prove significantly softer than normal.

The second driver of March sales gains has more to do with last year than this year. Last March 9, the stock market hit what I call a panic-level low. Investors were pricing shares for the end of the world, and everything looked like it would go to zero. So much of America's wealth, especially retirement savings, is tied into the stock market that as the market goes, so goes sentiment (see reader query below). The economy seemed to be at its lowest, and so even consumers who still had their jobs held back on spending. This year, as we compare sales against those panic-level lows, we should expect strong growth figures.

Thirdly, February was an especially horrid month in terms of the weather, and it may have helped pent up demand build that was possibly released in March. The combination of the three factors may have stirred up the perfect storm for strong Chain Store and Retail Sales in March.

Retail Sales were reported just last week, and gained by 1.6% over February, ahead of economists' expectations for a 1.2% gain. Moreover, March sales were 7.6% above March of 2009, also benefiting significantly from Gasoline Station gains of 26.4% (on gas prices) and Motor Vehicle Sales growth of 14.1%. Excluding autos, sales were up 0.6%, as Motor Vehicle and Parts Sales were powerful in March, benefiting from Ford (NYSE: F) and GM incentives geared to steal market share from Toyota (NYSE: TM) and Honda (NYSE: HMC) and Toyota's counter incentives geared to preserve share. As a result, Motor Vehicle & Parts Dealers Sales rose 6.7% in March, while Auto & Other Motor Vehicle Dealers sales increased 7.5%.

Growth was broad-based across retailers though. Clothing & Clothing Accessory Stores marked a sales gain of 2.3%; Sporting Goods, Hobby, Books and Music Stores saw a 1.0% increase; General Merchandise and Department Stores posted sales growth of 0.6% and 1.0%, respectively.

As great as things were in March, there is good reason to believe the next few months will not be as robust. Maybe Easter get-togethers put relatives into close proximity with the economic-victims within their own families, and changed the bright view they held just a few weeks earlier. The mid-April reading of the Consumer Sentiment Index offered a measure of 69.5, well off the March close of 73.6 and even shorter than the economists' consensus for 75 (Reuters).

The Index has components that help to color the image we have of consumers further. The opinion on Current Conditions soured in April, with the component index slipping to its lowest point since December (to 80.7). However, expectations have been the key driver of sentiment of late, as hope has been plentiful for economic recovery. As that fact has been slow proving though, the Expectations Index dropped to 62.3, down from 67.9 at the end of last month. This latest reading is the lowest since last March, which we remind you was a pretty tough time for most of us. It does not help that unemployment has been stubbornly holding, and small business sentiment lacking. These are the unfortunate realities that are sinking in on consumers these days.

Question for reader experts: How much less of America's wealth (percentage wise) is still invested in stocks, versus pre-crisis levels?



Editor's Note: This article should interest investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE.

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