Decoding Wall St.: Decoding Consumer Confidence Before a Report

If we told you a survey of 3,000 households in the U.S. had the power to send investors to the cleaners or make their day highly profitable, surely a chuckle would be belted out. We couldn’t fault you for the laughter as it does seem silly that a survey has the ability to send stock prices up or down. Welcome to consumer confidence surveys, and there are two to be on the lookout for (be smart: by an agency called the Conference Board and by the University of Michigan). There are many ins and outs to unlocking the coded messages contained inside a confidence report, and we will share them before an actual survey is released to the world this week.

The only claim to fame this report has is that it’s supposed to predict how consumers feel about the economy now and in the future, and their likelihood of spending or not based on those viewpoints. Back when the economy was really struggling in 2008, confidence plunged and so did retail sales. Consumers didn’t have confidence they would have a job the next day let alone six months down the line, and opted to add to their savings. As the economy improved in 2009 and into 2012, confidence perked up, and retail sales growth has been positive since November 2009.

However, just because a consumer tells a survey taker that they are confident it doesn’t mean a trip to Macy’s is around the bend. Observe that as confidence rebounded from August 2011 to February 2012 , the pace of retail sales growth has declined.

Decoding the Messages

Plug in consumer confidence into Google this Tuesday and there will be zillions of stories talking about the outcome of the latest survey. There will be numbers compared to numbers from the past and the use of fancy terms, making for no confidence in understanding what this important report is trying to share.

Be Smart Terms

• Headline index: Literally this is the number that capture’s all of the news headlines as it takes into account the different measurements inside the report. Imagine it as an average of sorts.
• Jobs hard to get: If consumers are finding it harder to land a job or jump to a new one, it may correlate to lower retail sales. The opposite is true if the index for jobs improves.
• Income prospects: In our opinion, this is the most important measurement in the report. Think of it this way; if you are confident regarding a paycheck in the future, spending today is more easily done.
 

Preview

Market expectations are high into the report from the Conference Board this Tuesday, with the consensus bracing for month to month improvement and in the minds of some, a large increase (seven points on top of the nine point rise from January to February). With consumer discretionary stocks having been strong in the face of the broader market sell-off last week, be cautious on this sector and overall into the release. We continue to be confident in our decoded short ideas Dinequity and Campbell’s Soup on the assumption higher gas prices begin to weigh on consumers more prominently in the months ahead.