Consumer Confidence is Hopeful at Best

In my report, Consumer Stocks Face Dangerous Stopper, I wrote, “I am expecting the Conference Board's measure to mark improvement, so be at ease.” Today, the Conference Board reported its Consumer Confidence Index gained nine points in September on its way to an index mark of 70.3. The consumer mood tracked the rise in stocks through the month (SPDR S&P 500 (NYSE: SPY) up 3.7%), and probably likewise benefited from reassurance by the European Central Bank (ECB) and expectations for a dovish Federal Reserve action which later followed.

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

Because the cutoff date for the survey was September 13, it only benefited ever so slightly from the Federal Open Market Committee (FOMC) monetary policy announcement and quantitative easing declaration. Still, it obviously benefited from the buildup of expectations for it through the month. Along with stocks, I believe it also has Mario Draghi and his creative and aggressive action, which I believe has effectively mitigated the European debt crisis (note, the economic crisis goes on), to thank. Of course, the mood of consumers is going to be less closely tied to the direct actions of the ECB at close proximity to those actions, and more responsive to the effects of those actions. It will more immediately be driven by the gains of capital markets and stocks, given the widespread ownership of them through retirement savings accounts.

“The whim of hope is represented here without a trace of tangible prosperity to anchor to.”

However, the consumer confidence gain, while hinged on the rise of forward looking equities and not on the employment situation or the pace of GDP, is superficial. The same superficiality applies for stock valuations in my opinion. You can see the consumer superficiality in the details of the report itself and in anecdotal data about the economy and corporate outlook. The Expectations Index, a measure of forward looking feelings for consumers, gained by 12.6 points on its way to a mark of 83.7. The whim of hope is represented here without a trace of tangible prosperity to anchor to.

The Present Situation Index, which better reflects how things really are today among Americans, also gained, but by only 3.7 points to a still unimpressive level of 50.2. And when you look more deeply into where specific surveyed issues ranked and what little the “improvement” actually means, you understand how hopeful this index really is today.

Surveyed Issue	Level	Change
Business Good	15.5%	+0.2%
Business Bad	33.3%	-1.0%
Jobs Plentiful	8.3%	+1.1%
Jobs Hard to Get	39.9%	-0.7%
Business to Improve	18.2%	+1.5%
Business to Worsen	13.8%	-3.8%
Expect More Jobs	18.5%	+2.7%
Expect Less Jobs	18.5%	-5.2%

In my view, consumers are less relevant respondents with regard to forward looking information. I think this is evident in the relatively lower overall response rate to the last four rows of the survey topics depicted above here. Also, they are nearly evenly divided on forward looking issues, and certainly less opinionated with regard to the outlook, which may simply reflect uncertainty. Uncertainty, in and of itself, is bad for equities, and probably to some lesser degree, also bad for consumer spending. Looking at the jobs and business questions for the present time, sentiment improved, but remains at absolutely poor levels.

Another report also issued today showed real consumer spending softening. The weekly chain store sales data reported by the International Council of Shopping Centers (ICSC) showed a week-to-week sales gain of just 0.6% in the period ending September 22nd, and that followed the prior week decline of 2.5%. Now these data may be holiday impacted, but the year-to-year change was also relatively unimpressive at +2.9% (last week it was +2.1%). The rate of growth barely edges inflation, with the latest Consumer Price Index showing price rise of 1.9% year-to-year in August, excluding food and energy price change. Redbook reported year-to-year chain store sales today up just 2.0%.

Anecdotal evidence among a significant number of companies shows a tighter competitive environment, as consumers selectively choose within perhaps saturated retail capacity. In tight economic conditions, if shopping activity loses robustness, then there will be less pie to share among competitors. For this reason, companies like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD) are finding difficult times and resolving to profound change in operating strategy. For this reason, shoppers are gravitating towards lower cost value store options, driving market share gains for the likes of Wal-Mart (NYSE: WMT), eBay (Nasdaq: EBAY), Amazon.com (Nasdaq: AMZN) and Dollar Tree (Nasdaq: DLTR).

So, despite this latest consumer confidence swing, I suggest investors look toward more tangible evidence of consumer spending, like that seen in the chain store sales data. This Friday, an even better measure of the consumer mood will be reported. Look toward the Personal Income & Outlays data, and what it says about real consumer spending, excluding the impact of price change, for a better guide into the state of mind of American consumers.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Retail Sales Report for August Crimped by Gas Prices

In a day offering the first real test for stocks since the latest Federal Reserve quantitative easing program, with five economic reports on the slate, Retail Sales led the opposition. You would have thought that retail sales growth of 0.9% on the month, a Street beating figure (consensus at +0.8%), would be good news. However, as always, I’m here to put the report under the microscope and show you why it is not.

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.

While sales beat Wall Street on the headline, our survey of the report shows that to prove misleading. The first important point to make is that Retail Sales for the month before (July) were revised lower, to +0.6%, from +0.8% when reported initially. The effect of lowering your basis for comparison is to raise the percentage gain for the current period if the result comes close to being in line. Thus, unlike the percentage change superiority over the economists’ consensus, you bet your bottom dollar that the absolute forecast figure for the consensus is closer to the absolute real result for August.

The second point I want to make is that this data does not adjust for price changes, and so is influenced by price changes, including in volatile food and energy. Thus, when we take out the sales of autos and gasoline, we find that those sterilized retail sales only increased by 0.1%, against the revised higher July gain of 0.9%. Wall Street is not stupid, and so incorporated the monthly increase in gasoline prices to find an adjusted expectation for a 0.4% gain here. Obviously, that’s still too high and so the result is a disappointment on all counts.

Looking within this data, we see the catalyst is not autos. Ex-auto sales still increased 0.8% in August, off the unadjusted prior increase of 0.8% in July. So, you can contain your concern for Ford (NYSE: F) and General Motors (NYSE: GM) that might have been tied to this report. Those two stocks were up in the early going, probably because of market focus on this line detail.

However, gasoline station sales gained sharply on the higher price of gas in August. Those sales rose 5.5% against July, driving the top line of companies like The Pantry (Nasdaq: PTRY), but also of course Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).

Retail trade sales, which is what most people think about when they hear this report cited, increased by 0.9% in August, against the 0.7% gain in July. However, we’ll need to once again focus on the specific types of sellers to really glean anything important for the stocks you own. General Merchandise Store sales declined by 0.3% in August, after a 0.1% increase in July. While this category would include Wal-Mart (NYSE: WMT), it also includes non-discount department stores like Sears (Nasdaq: SHLD), Macy’s (NYSE: M) and J.C. Penney (NYSE: JCP). Though department store sales, when broken out, rose 0.1% in August, against their 0.8% gain in July. I think that what this data is telling us is that the pie shrinking and so there will be winners and losers when these companies next report earnings.

Ahead of the new Apple (Nasdaq: AAPL) iPhone release, the sales of Electronics and Appliance Stores like Best Buy (NYSE: BBY) fell by 1.4% in August, versus their 1.0% gain in July. Obviously, things will change as we incorporate the new iPhone into forward sales.

Supporting the case for homebuilders and renovators, the sales of Building Material and Garden Equipment Supplies Dealers like Home Depot (NYSE: HD) increased by a solid 1.0% in August, following the 1.2% gain made in July.

Food and beverage sellers, including grocery stores, saw sales unchanged in August. Without incorporating any change in food prices in the month, this could be due to less eating out at casual dining establishments like those provided by Brinker International (NYSE: EAT) and Darden (NYSE: DRI) restaurants. With regard to grocery, Wal-Mart is gaining share from traditional markets like those provided by Supervalu (NYSE: SVU) and Kroger (NYSE: KR).

Clothing and accessories stores like Abercrombie & Fitch (NYSE: ANF) and The Gap (NYSE: GPS) may not have gotten a good enough lift from back-to-school shopping, given the segment’s sales declined 0.1% against July. Of course, this is also going to be a fashion and smaller pie story, with some stores gaining as others lose customers.

Non-store retailers, including some of America’s favorite destinations like eBay (Nasdaq: EBAY) and Amazon.com (Nasdaq: AMZN) saw no change in August sales, against a 1.9% increase in July. We might pin the July gain to the heat, keeping consumers in their air conditioned homes, shopping away on their laptop. August is a holiday period, but no change is unexpected here, given the heat and also back-to-school. Perhaps consumers don’t have time to wait for shipping, or be home to receive during the vacation period ahead of the start of school, but that’s just speculation. We’ll have to wait on September to know for sure.

All in all, August looks like a disappointment for retail sales in my estimation, save perhaps the auto industry and gasoline providers, and also the construction materials peddlers. It may be the higher price of gasoline that hurt the rest of the sector. As it looks like gasoline prices are only going higher from here, given geopolitical fires and capacity constraints, not much should change for the better. The consumer mood is deteriorating on a once again apparently weakening domestic economy. In conclusion, this report supports my case for the spread of recession to our shores not too long from now.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

ICSC & Redbook Same-Store Sales Reported Soft

The weekly flow of same-store sales, as measured by the International Council of Shopping Centers (ICSC) and Redbook have offered really ugly insight into consumer spending of late. The importance of consumer spending in the United States cannot be understated. Unfortunately, it is slipping, as I pointed out in “Recession’s Key Ingredient Added” and “Glaring Recession Signal – Consumer Spending Stops”.

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.

This week’s data from the ICSC showed same-store sales inched higher by just 0.5% in the week ending August 25, 2012. That embarrassing growth came on a prior week decline of 1.5%. And this is during a period within which consumers are supposed to be shopping for back-to-school needs. If you go back over the weekly data through the past several months, you find a soft trend that in my estimation reflects a path toward recession.

On a year-over-year basis, the ICSC reported same-store sales growth of 3.4%, which marked improvement over the prior week’s 3.1% growth. While this rate is decent, in weeks past we’ve seen growth under the rate of inflation, which clearly implies economic contraction. Redbook reported the year-to-year rate at 1.5% this week, versus 1.9% last week. Each of those rates reflect a slower pace than inflation, and are inadequate to meet current mainstream economic projections (not mine obviously).

I don’t believe we have to look too far for anecdotal evidence of consumer softness either. Even high-end retailer, Tiffany (NYSE: TIF), cautioned on the outlook yesterday after reporting short of Wall Street expectations. Tiffany’s shares rose yesterday, get this, partly on a lesser same-store sales decline (-1%) than was expected by analysts (-4%).

Others like J.C. Penney (NYSE: JCP) are suffering because of poorly timed dramatic change at a time of economic question. The discounters are all the rage today; I even noted Mitt Romney and his wife bragging about buying some shirts at Costco (Nasdaq: COST), perhaps in an effort to fit the economic reality of most Americans. It is the best price sellers like Wal-Mart (NYSE: WMT), Amazon.com (Nasdaq: AMZN), eBay (Nasdaq: EBAY) and Dollar Tree (Nasdaq: DLTR) which are doing best today. That’s something I pointed out through several articles over recent months, including “5 Stocks to Own if Consumers Check Out”. It is because they sell things cheapest at a time when more Americans value price most.

The one-year chart of the Consumer Discretionary Select Sector SPDR (NYSE: XLY) does not reflect the environment I just highlighted. Thus, it illustrates an environment within which many stocks are likely vulnerable.


Charts by Yahoo Finance

The SPDR S&P Retail (NYSE: XRT) offers the same view.



At 10:00 AM EDT this morning, the Conference Board reported Consumer Confidence dropped like a rock, to 60.6, from 65.9 at last check. That should be no surprise to readers of my recent write-up, “Regarding the Consumer Sentiment Celebration – I’ll Pass”, but it’s waking some folks up to the truth today. Stocks are moving lower since the 10 AM release, with the SPDR S&P 500 (NYSE: SPY) indicating lower fractionally. Take heed fellow investors because if the consumer is checking out as I see it, a rude awakening is in store for the second half economy and the stock market.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Regarding the Consumer Sentiment Celebration – I’ll Pass

Rejoice oh troubled masses of American investors, the consumer has been reported still living. Yes, the dead and depressed are walking and talking, and according to the headlines of the popular press, they are in a better mood for shopping too.

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.

The Thomson Reuters/University of Michigan Consumer Sentiment Index improved in mid-August to 73.6, from 72.3 in July (and 73.2 in June). This nascent revival broke a sorry streak of two consecutive months of deterioration for the data point. Apparently it was cause for celebration, as the SPDR S&P 500 (NYSE: SPY) pushed a bit further toward a 1.0% gain for the week. The celebration was more clearly seen in Friday’s 0.4% gain of the Consumer Discretionary Select Sector SPDR (NYSE: XLY) and the 0.7% rise of the SPDR S&P Retail (NYSE: XRT).

The measure of current economic conditions improved last month by 4.9 points, to 87.6. The latest stock market gains, as seen in the performance of the SPY, probably have something to do with that. The rise of the last couple months has continued a positive trend spanning the past year.


Chart at Yahoo Finance

Yet, it would appear the gains of both stocks and consumer sentiment are based on a weak foundation, supported by hope in the world’s central banks. The fresh consumer report showed consumer expectations about the future are much more pessimistic than the feeling about today. The Expectations Index decreased to a lowly mark of 64.5, from 65.6 in July, as investors look forward to a fiscal cliff, global economic demise and maybe a complex war in the Middle East. Meanwhile, in the U.S., gasoline prices are rising, unemployment is not improving, and business investment is limited by economic and political uncertainty, with regulatory uncertainty tied to that. So, if you’ll excuse me, I’ll save my champagne for another day.

Retailers’ shares also benefited from the week’s Retail Sales data, which showed July’s retail sales gained 0.8% and rose 0.9% when excluding autos and gasoline. Each data point far exceeded economists’ consensus expectations, but that was at least partly due to their following revised lower June figures. The XRT gained 2.3% on the week nonetheless. Still, the news didn’t help the nation’s most important retailer, Wal-Mart (NYSE: WMT), which reported results that didn’t justify its premium valuation to growth expectations. Individual data dictated the direction of many retailers during this reporting period for the industry.

Investors bought stocks generally Friday on the consumer report and data showing the Leading Economic Indicators Index (LEI) improved in July. Equities were also supported by Angela Merkel’s nod to European Central Bank (ECB) support of the euro and troubled area bonds. Joining the SPY higher, the SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) gained fractionally on the day Friday. Meanwhile, the dollar and gold held about steady, with the PowerShares DB US Dollar Index Bullish (NYSE: UUP) and the SPDR Gold Shares (NYSE: GLD) each inching forward. The price of crude rose Friday though, on Iranian President Ahmadinejad’s latest provocation. The iPath S&P GSCI Crude Oil TR Index ETN (NYSE: OIL) gained 1.2%.

In conclusion, while traders celebrate the headlines, I advise investors to take a pass on the party.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.