Consumer Confidence Will Dive When 401K Statements Arrive

By The Greek:

The Conference Board reported that consumer confidence soared in June to a five-year high, but be careful, as this is only sustainable until passive investors receive their 401K statements next month. The consumer mood is greatly shaped by the personal wealth perspective.

The Conference Board reported the Consumer Confidence Index jumped to 81.4 in June, up from 74.3 in May. Some of the gain was due to improvement in the Present Situation Index, which rose to 69.2, from 64.8. However, a good portion of the improvement came on a gain in the Expectations Index, which improved greatly to 89.5, from 80.6.

I’m always wary of gains driven by expectations, as they are built on hope more than substance, and so can disappear as quickly as they come. In this case, that’s exactly what I expect to happen in a few weeks when passive investors across corporate America receive their 401K statements. The statements will show a disruption in the returns they had grown used to recently. Such disruption is especially important because Americans feel confident when they feel wealthy, as evidenced by the “wealth effect,” which is most often related to real estate values.

Market Security	June-to-Date	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	-3.4%	+11.4%
SPDR Dow Jones (NYSE: DIA)	-3.0%	+13.3%
PowerShares QQQ (Nasdaq: QQQ)	-4.5%	+7.7%

As you can see, stocks have not done well in June versus the returns investors had gotten used to this year and last. Yet, consumer relative shares are higher today on the consumer confidence news, with the two top retailers online and on the street, Amazon.com (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT), up 0.1% and 0.5%, respectively today. Each of the two stocks has had a good run through the economic recovery of the last couple years. Furthermore, both Amazon.com (AMZN) and Wal-Mart (WMT) have benefited from offering lower cost goods into a still laboring economy.

Chart at Yahoo Finance

A second bit of retail data reached the wire today as well. The International Council of Shopping Centers (ICSC) reported its Weekly Chain Store Sales data. For the period ending June 22, same-store sales rose 1.1%, versus the prior week increase of 0.3%. On a year-to-year basis, sales were up just 1.6%, versus the prior week’s yearly gain of 2.5%. While inflation is low now, these growth rates are only just barely meeting rising prices, and that is not a sign of health, though possibly a good sign for Wal-Mart and Amazon.com, which cater to value shoppers.

For economists and market enthusiasts, the takeaway from the Consumer Confidence Index should be that this might not last given the new paradigm the Fed has laid out for stocks. In my weekly report at my blog, I warned investors to beware of dated data this week, which would provide false comfort to markets. This data point is not one of those as it is measuring a current period, but it is at risk of change near-term due to the likely change in consumer mood that should come with altering perspectives of personal wealth as 401K reports are received. So, in conclusion, I advise those made confident by today’s report to temper their enthusiasm.

Retail Relative Securities	June 25 Change 3:20 PM ET
SPDR S&P Retail (NYSE: XRT)	+1.8%
Consumer Discretionary SPDR (NYSE: XLY)	+0.9%
Macy’s (NYSE: M)	+1.1%
J.C. Penney (NYSE: JCP)	+4.0%
Nordstrom (NYSE: JWN)	+2.2%
Kohl’s (NYSE: KSS)	+1.8%
Sears (Nasdaq: SHLD)	+0.1%

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.

Recession Signal - This Consumer Data is Alarming

By The Greek:

Bloomberg’s Consumer Comfort Index showed improvement today, but the abrupt change in the weekly measure is deceptive and perhaps simply influenced by pleasant weather in the population dense Northeast U.S. The index, while still deeply in negative territory, still reflects a troubled state of affairs. Furthermore, recent monthly measures of consumer sentiment have clearly shown cause for alarm, and for good reason.

Bloomberg’s Consumer Comfort Index improved for the week ended April 14 to a mark of -29.2. The magnitude of the 4.8 point improvement was unusual, only seen about 1.8% of the time. The gain was the biggest seen since December 2011, and the absolute value of the index was the highest it has been in five years. But there was a divergence in the groups of Americans measured, with lower income Americans remaining depressed. Considering that the real unemployment rate could be as high as 11.9% and real underemployment could reach 17.8%, this is an important segment of the nation today, and bigger than the government estimates.

Because of the divergence in wealth segments, I suspect the improvement could simply be the result of warmer weather in the Northeast. Obviously, I cannot prove this, but the cherry blossoms are blooming on 81st Street outside my window, and a pleasant feel fills the air.

Three component measures of the index gained last week, and the Personal Finances measure actually moved above the waterline. The tragic state of affairs is apparent nonetheless in the fact that most of the measures remain in deeply negative territory, with the index range from +100 to -100.

Component	Level
Personal Finances	+1.6
Current View of Economy	-54.7
Good Time to Spend	-34.6

Further evidence of the way consumers really feel today was provided by the most recent monthly measures of consumer sentiment. The Thomson Reuters/ University of Michigan Consumer Sentiment Index, reported last Friday, showed the index fell to a nine-month low in April. The measure of the consumer mood fell 6.3 points, to 72.3, the lowest it has been since July 2012. It caught economists by surprise, with the consensus forecast set at 78.5, according to Reuters.

Not long before Reuters’ reported on it, the Conference Board reported its Consumer Confidence Index for March dropped precipitously by 8.3 points to a mark of 59.7. Most of the decline was measured in expectations, which I have proposed in the past were raised after the U.S. government passed its debt ceiling and fiscal cliff tests. Those moves allowed stocks to rise in the first quarter, including consumer shares.

Security	Q1 2012
SPDR S&P 500 (NYSE: SPY)	+10.5%
SPDR Dow Jones (NYSE: DIA)	+11.9%
PowerShares (Nasdaq: QQQ)	+6.1%
Consumer Discretionary SPDR (NYSE: XLY)	+12.0%
SPDR S&P Retail (NYSE: XRT)	+12.8%

However, the declines seen in the monthly measures of the consumer mood probably better reflect reality, considering hopes were built on expectations and not the views of consumers about the present situation. What’s weighing on them today was verified to me by the simple statement of a simple friend, a gentlemen maintenance worker at my church, who said, “I don’t like Obama anymore.” I asked Vangelis why and he responded, “Because my taxes went up.”

The expiration of the payroll tax break was a failing of the government with regard to the fiscal cliff, and is weighing today on an already stressed American consumer. Furthermore, those 7.7 million Americans we are not counting today as part of the labor force are not employed (including the retirees), except for possibly undocumented work doing things like dog walking and odd jobs for cash. Such means of making a living is not going to inspire them to shop much. This situation must result in lighter consumer spending, and therefore, a slower pace of GDP growth. Indeed, even the Federal Reserve said a 1.5 percentage point drag could be expected for GDP this year because of the Sequester Spending Cuts and the payroll tax break expiration. Yet the Fed failed to include its own admission in its forecast this past March. This means a surprise could be in store when GDP is reported.

Retail Sales, reported for March last Friday, showed sales excluding autos and gasoline fell by 0.1%. Major retailers are no longer reporting their monthly same-store sales, and even that is indicative of bad times. Public companies are all the more likely to share good news and to keep bad news quiet if they can. The trend of many now joining the major names like Wal-Mart (NYSE: WMT) in refraining from such reporting could be an omen of a tough quarter ahead. The market share gains of discounters and bargain web retailers, like Amazon.com (Nasdaq: AMZN), Wal-Mart, Target (NYSE: TGT) and Costco (Nasdaq: COST) are indicative of the erasable era we live in. But what is troubling me most today is that these latest consumer mood measures show that how consumers really feel is alarming, and economic recession is all the more possible because of it.

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.

Why the Week’s 4.7% Same-Store Sales Growth is Misleading

By The Greek:

It sounds fantastic! Retailers reported weekly same-store sales increased by 4.7% week-to-week in the period ending March 30. That is great news right? No, it’s not, and here’s why.

The International Council of Shopping Centers (ICSC) reported same-store sales rose 4.7% week-to-week in the March 30 period. On a year-over-year basis, sales were up 1.9%, though Redbook saw the yearly comparison for the period even better, at plus 3.5%. Perhaps readers suspect we might pooh-pooh the news by attributing the sales growth to discounters like Wal-Mart (NYSE: WMT) or to online sellers like Amazon.com (Nasdaq: AMZN), due to their stealing of market share from the Macy’s (NYSE: M) and J.C. Penney’s (NYSE: JCP) of the world. No, that’s not it. So what’s wrong with the numbers then?

Well, a peak at the prior week’s results offers a clue. In the week ending March 23, the ICSC reported same-store sales were down 1.7% week-to-week. The yearly comparisons were likewise poor, with sales only 1.0% higher according to the ICSC and 2.6% higher according to Redbook. The reason is really rather simple.

It’s about the Easter holiday and where it sits on the calendar this year versus last year. This year, Easter fell on March 31st, and last year it fell on April 8th. Sales were strong in the week of Easter and Passover because of the surge of seasonal sales tied to the holidays, not all of which are accounted for perfectly. Consider all the flowers 1-800-Flowers.com Inc. (Nasdaq: FLWS) sells and all the Easter Baskets CVS Caremark (NYSE: CVS) sells, all the Easter Bonnets Macy’s (M) sells and all the new dresses J.C. Penney (JCP) sells. Let’s not forget the Easter and Passover meals that lead families to gather together, and the necessary shopping at Kroger’s (NYSE: KR) and Whole Foods Market (NYSE: WFM).

For this reason sales picked up in the week before Easter as they do every year. From this understanding, we garner insight about next week as well, because last year the week incorporated Easter shopping and this year it will not. Thus, these same-store sales reports should show poor comparable results on a weekly and yearly basis when reported next Tuesday.

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.