Consumer Confidence is Waning

In case you missed it, the week offered several warning signs on the consumer front, with two data points indicating that consumers may go into lockdown mode soon. A third report showed institutions are exhibiting less confidence in equities and have reduced exposure of late. If confidence is truly waning, too much shouldn’t be expected of the economy or the stock market near-term.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Consumer Confidence

Thursday should have served a wakeup call to anyone who had blown off two of the week’s earlier sentiment data points. Bloomberg reported its weekly consumer confidence measure, the Bloomberg Consumer Comfort Index. The regular metric of the consumer mood produced its most precipitous drop in over a year’s time. The index fell to negative 35.8 in the period through April 22nd, down from minus 31.4 the week before. Bloomberg’s tally takers noted drops in the “buying climate” and in the view of household financial wherewithal.

Most certainly, the latest souring of the stock market has played a role in the mood of consumers, given the stake in it most of us have within our retirement accounts. Coincidentally, State Street (NYSE: STT) reported its latest measure of the investor mood this week, and it was consistent with our assessment here. State Street Global Markets published its State Street Investor Confidence Index (ICI) for April, showing its global ICI fell 3.9 points. Interestingly enough, neither North America nor Europe were the driving forces behind the decline, as the respective regional confidence measures fell 0.7 and 0.1 points. Rather, it was Asia that drove the global drop-off, with the Asian component measure falling 7.5 points.

The reason for the lost confidence among Asia’s institutional investors should be disturbing to the rest of the world as well. The latest economic data out of China has offered more evidence of slowing Chinese economic growth. Given that so much of the world is serving Chinese growth now, and noting that the world is likewise greatly served by China-based production, regional concerns reflect upon the world.

Sustained high gasoline prices are almost certainly annoying American consumers as well. Though, average gasoline prices at the pump have been on the decline this month. The U.S. Energy Information Administration reports gas prices continued a good trend into April 23, falling to an average price of $3.87 nationally.

That said, the latest survey by the Conference Board produced just a slight change in the Consumer Confidence Index, with April’s measure declining to 69.2, down from 69.5 in March. Of course, this understates what really happened this month, because March was revised lower from 70.2. Thus, the decline was more significant than reported. Also, economists were looking for a reading of 69.7, a half point more than the realized index.

More telling information can be found in the survey details and it does not offer good news. For instance, while the overall measure of current conditions improved to 51.4 from 49.9, those claiming business conditions were “good” amounted to 15.3% of those tallied. Meanwhile, those claiming business conditions were “bad” rose to 33.5%. The Expectations Index declined to 81.1 from 82.5, as more people expected conditions to deteriorate while those seeing improvement fell in number.

With the latest labor data offering more evidence of deterioration, we found nothing inconsistent in this survey. The number of people describing the process of getting a job as difficult amounted to 37.5%, while those believing jobs were plentiful amounted to 8.4%. The outlook for the job market was mixed, but I anticipate it will deteriorate as the economic situation recesses.

The stock market blew off the bad consumer news Thursday thanks to the Apple earnings high it’s been flying on. While the SPDR S&P 500 (NYSE: SPY) gained 0.7%, the Consumer Discretionary Select Sector SPDR (NYSE: XLY) soared by 1.25%. Likewise, the SPDR S&P Retail (NYSE: XRT) climbed 1.4%, but I would warn sector investors to pay closer attention to the mood of consumers and the flow of economic data, because it offers a different message than that offered by the tech and internet high flyers. Still, given the solid results from Amazon.com (Nasdaq: AMZN) and Zynga (Nasdaq: ZNGA) Thursday afternoon, the trend may continue through the week’s close.

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