Consumer Confidence Symptomatic of Economic Muddle
The latest bout of lost consumer confidence is simply symptomatic of economic muddle and political stalemate. Long-term unemployment, threats to employment benefits and other stimuli souring have injured the mind and mood of America's most important segment, and threaten to lead the economy into double-dip recession.
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Consumer Confidence is Symptomatic of Economic Muddle
The Conference Board published its Consumer Confidence Index for the month of July this week. The Board's latest measurement of the consumer mood showed even further deterioration in July sentiment, to a level of 50.4, from June's revised mark of 54.3 (from 52.9). The Conference Board's late June report produced a near 10 point decline in the index from a May mark of 62.7. That type of a dramatic drop in the index usually coincides with a shock to the market and economy, but not this time. Take note, because this is extremely troubling.Given that the index saw no rebound off a drastic drop, investors received an important signal Tuesday. Consumers drive the American economy, which has evolved to become services oriented and consumption based. The warning siren on the consumer mood has been wearing out our ears here at Wall Street Greek for some time now, and the batteries must be running low on that horn by now. We first noticed red flags on this metric when the Board's Expectations Index showed its initial cracks. However, we were looking toward those cracks when investors were sure the economic foundation was sound and strengthening; many on the street were instead intoxicated by profit calculations on rising stocks.
We reiterate: President Obama must key on the employment situation and seek to spur business and job growth to lead the USA out of economic trough and anchored unemployment. His plans for an alternative energy manufacturing base must move forward, as this stratagem offers a path to a new industrial revolution. This potential revolution can bring jobs back to the US, and make the country a viable exporter and supplier to a new and important global marketplace.
Consumer Confidence Report Details
Consumers are sour on both the current reality of the economy and future prospects. The Present Situation Index slipped further in July, to a level of 26.1, from 26.8 in June. It looks as if consumers see the current situation as about as bad as can be, and for good reason. Consumer opinions about the state of employment have softened as job seekers lose hope. Consumers claiming that jobs are hard to get increased in July, to 45.8% of those surveyed, from 43.5% in June. Those saying that general conditions are bad also increased to 43.6%, from 41.0% in June.
"The outlook is hopeless, as per the opinion of the most important segment of Americans."
The outlook is hopeless, as per the opinion of the most important segment of Americans. The Expectations Index dropped to 66.6 in July, from 72.7 last month. The percentage of consumers that see an improvement coming over the next six months fell as well, to 15.9%, from 17.1% last month. Those who see things getting worse increased in number, rising to 15.7% of those surveyed, from 13.9% in June. Again the key to concern remains the job situation, with almost 10% of the labor force still unemployed and near 17% working less hours than satisfactory. And the average workweek is decreasing, based on the latest data. Soon, manufacturers may need to again cut workforce, as shifts bleed away. The Conference Board asked consumers about their outlook for the job market, and the unfortunate news is that those who see job opportunities increasing over the next six months fell in number to 14.3%, from 16.2% in June. Those anticipating fewer jobs increased a full percentage point, to 21.1%.
Retail Trouble Ahead
The back to school shopping season is an important catalyst for the retail sector, and a somewhat reliable driver of sales traffic. However, given the high and increasing number of long-term unemployed, spending is under threat to decrease this season. It's sad that the best argument against that statement is that last year's sales were pretty darn bad. That means retailers may have to dig deeper into margins to inspire shoppers to buy goods at their location versus the one down the street. And now that unemployment benefit extensions seem like a less reliable source of income for many Americans who are surviving on them, consumers are very likely to tighten their wallets again this year.
The latest Weekly Same-Store Sales data reported by the International Council of Shopping Centers (ICSC) this morning, is still showing growth. Sales rose 0.6% on a week-over-week basis for the period ending July 24. When compared to last year's soft activity, sales stood 3.8% higher. We have often noted here that as last year's comparables get harder to beat, we'll see this comparison soften dramatically. We're still matching against some of the weakest absolute sales numbers (per person) seen in modern US history.
This means that competition will tighten further for the big box department stores like Macy's (NYSE: M), J.C. Penney (NYSE: JCP), Kohl's (NYSE: KSS) and others, and cost management will remain in focus. Specialists like Aeropostale (NYSE: ARO), Chicos (NYSE: CHS), Ann Taylor (NYSE: ANN), The Gap (NYSE: GPS), Wet Seal (Nasdaq: WTSLA), Hott Topic (Nasdaq: HOTT), The Limited (NYSE: LTD), Children's Place (Nasdaq: PLCE) and others will need to excel in buying and fashion sense to differentiate their wears. And the discounters will continue to steal market share, so good news for Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Costco (Nasdaq: COST), Family Dollar (NYSE: FDO), Dollar Tree (Nasdaq: DLTR), Dollar General (NYSE: DG) and Sears' (Nasdaq: SHLD) K-Mart stores.
Conclusion
In summary, seeing Consumer Confidence wane further in July, after a precipitous drop in June, should be of highest concern to the Administration, Congress, investors and all Americans. Our national economic driver, consumer spending - or rather the consumer, is losing confidence in economic recovery and in government supports. We must continue to prioritize stimulus over budgetary controls, as this economic trough will be impossible to climb out of otherwise. The budget is a long-term issue that is worthy of concern, but we cannot let political purposes now clutter sound decision making. We need to restore business and job growth to renew consumer spending. We can address the budget in due time, or now (somewhat), but in a manner that does not threaten economic recovery nor confidence.
Tuesday's earnings included news from Cephalon (Nasdaq: CEPH), C.H. Robinson Worldwide (Nasdaq: CHRW), AmerisourceBergen (NYSE: ABC), Office Depot (NYSE: ODP), International Game Technology (NYSE: IGT), Norfolk Southern (NYSE: NFK), AM Castle (NYSE: CAS), Acadia Realty Trust (NYSE: AKR), ACE Limited (NYSE: ACE), Active Power (Nasdaq: ACPW), Aetna (NYSE: AET), Affiliated Managers Group (NYSE: AMG), Aflac (NYSE: AFL), Agco (Nasdaq: AGCO), AK Steel (NYSE: AKS), American Campus Communities (NYSE: ACC), Ametek (NYSE: AME), Anixter Int'l (NYSE: AXE), Arthur J. Gallagher (NYSE: AJG), Asbury Automotive Group (NYSE: ABG), ATC Technology (Nasdaq: ATAC), B&G Foods (NYSE: BGS), Barrett Business Services (Nasdaq: BBSI), Basic Energy Services (NYSE: BAS), BE Aerospace (Nasdaq: BEAV), Bemis (NYSE: BMS), Blackbaud (Nasdaq: BLKB), Boston Properties (NYSE: BXP), BP (NYSE: BP), Broadcom (Nasdaq: BRCM), Canon (NYSE: CAJ), Capella Education (Nasdaq: CPLA), Capital Trust (NYSE: CT), Capitol Federal Fin'l (Nasdaq: CFFN), Carlisle Cos. (NYSE: CSL), Cathay General Bancorp (Nasdaq: CATY), CB Richard Ellis (NYSE: CBG), CBiz (NYSE: CBZ), Centene (NYSE: CNC), Century Aluminum (Nasdaq: CENX), Ceradyne (Nasdaq: CRDN), CGI Group (NYSE: GIB), Charm Communications (Nasdaq: CHRM), Chelsea Therapeutics (Nasdaq: CHTP), Chicago Bridge & Iron (NYSE: CBI), Choice Hotels International (NYSE: CHH), CIT Group (NYSE: CIT), Cobalt Int'l Energy (NYSE: CIE), Companhia Brasileira de Distribuicao (NYSE: CBD), Compass Minerals (NYSE: CMP), Compugen (Nasdaq: CGEN), Computer Task Group (Nasdaq: CTGX), Corn Products Int'l (NYSE: CPO), CSG Systems (Nasdaq: CSGS), Cummins (NYSE: CMI), Cynosure (Nasdaq: CYNO), Delphi Fin'l (NYSE: DFG), Deltic Timber (NYSE: DEL), Deutsche Bank (NYSE: DB), DiamondRock Hospitality (NYSE: DRH), Dice Holdings (NYSE: DHX), Dominos Pizza (NYSE: DPZ), Dorman Products (Nasdaq: DORM), Dreamworks Animation (NYSE: DWA), DST Systems (NYSE: DST), DuPont (NYSE: DD), Dynex Capital (NYSE: DX), EarthLink (Nasdaq: ELNK), East West Bancorp (Nasdaq: EWBC), EastGroup Properties (NYSE: EGP), Ecolab (NYSE: ECL), Edac Technologies (Nasdaq: EDAC), eHealth (Nasdaq: EHTH), Empressa Nacional de Electricidad SA - Endessa Chile (NYSE: EOC), Endurance Specialty (NYSE: ENH), Endwave (Nasdaq: ENWV), Energizer (NYSE: ENR), Enersis SA (NYSE: ENI), Entegris (Nasdaq: ENTG), Entercom (NYSE: ETM), EPIQ Systems (Nasdaq: EPIQ), Ferro (NYSE: FOE), First Community Bancshares (Nasdaq: FCBC), FirstMerit (Nasdaq: FMER), Fiserv (Nasdaq: FISV), Flagstar Bancorp (NYSE: FBC), FormFactor (Nasdaq: FORM), Global Payments (NYSE: GPN), Group 1 Automotive (NYSE: GPI), Grupo Radio Centro (NYSE: RC), GTC Biotherapeutics (Nasdaq: GTCB), Hanger Orthopedic (NYSE: HGR), Hanmi Fin'l (Nasdaq: HAFC), Hawaiian Holdings (Nasdaq: HA), Heidrick & Struggles (Nasdaq: HSII), Hutchinson Tech (Nasdaq: HTCH), ICON (Nasdaq: ICLR), Iconix Brand (Nasdaq: ICON), Illumina (Nasdaq: ILMN), Imation (NYSE: IMN), Imergent (AMEX: IIG), Innodata Isogen (Nasdaq: INOD), IntegraMed America (Nasdaq: INMD), Integrated Silicon Solution (Nasdaq: ISSI), InterMune (Nasdaq: ITMN), Intricon (Nasdaq: IIN), Inventure Foods (Nasdaq: SNAK), Invesco (NYSE: IVZ), IRIS Int'l (Nasdaq: IRIS), Jacob's Engineering (NYSE: JEC), JDA Software (Nasdaq: JDAS), Kansas City Southern (NYSE: KSU), Keynote Systems (Nasdaq: KEYN), Kimco Realty (NYSE: KIM), Kinetic Concepts (NYSE: KCI), Kona Grill (Nasdaq: KONA), LB Foster (Nasdaq: FSTR), L-3 Communications (NYSE: LLL), LAN Airlines (NYSE: LFL), Lawson Products (Nasdaq: LAWS), LCA-Vision (Nasdaq: LCAV), Lennox Int'l (NYSE: LII), Level 3 Communications (Nasdaq: LVLT), Lexmark (NYSE: LXK), Lincoln Electric (Nasdaq: LECO), Lockheed Martin (NYSE: LMT), Manitowoc (NYSE: MTW), Massey Energy (NYSE: MEE), MBT Financial (Nasdaq: MBTF), Meritage Homes (NYSE: MTH), Nabors Industries (NYSE: NBR), Nalco Holding (NYSE: NLC), National Instruments (Nasdaq: NATI), New Alliance Bancshares (NYSE: NAL), Numerex (Nasdaq: NMRX), NuVasive (Nasdaq: NUVA), Occidental Petroleum (NYSE: OXY), optionsXpress (Nasdaq: OXPS), PAM Transportation (Nasdaq: PTSI), PACCAR (Nasdaq: PCAR), Pacific Capital (Nasdaq: PCBC), Panera Bread (Nasdaq: PNRA), PAR Tech (NYSE: PTC), Parametric Technology (Nasdaq: PMTC), Patriot Coal (NYSE: PCX), Penn Virginia (NYSE: PVG), Penn Virginia Resources (NYSE: PVR), Pervasive Software (Nasdaq: PVSW), Pharmaceutical Product Development (Nasdaq: PPDI), Pixelworks (Nasdaq: PXLW), PrivateBancorp (Nasdaq: PVTB), QLT Inc. (Nasdaq: QLTI), Questar (NYSE: STR), RadiSys (Nasdaq: RSYS), Radware (Nasdaq: RDWR), Ramco-Gershenson Properties Trust (NYSE: RPT), Ramtron (Nasdaq: RMTR), ReachLocal (Nasdaq: RLOC), Regions Fin'l (NYSE: RF), Renaissance Re (NYSE: RNR), RF Micro Devices (Nasdaq: RFMD), Rimage (Nasdaq: RIMG), Rockwood Holdings (NYSE: ROC), Rocky Brands (Nasdaq: RCKY), Rogers Communications (NYSE: RCI), SAP AG (NYSE: SAP), SeaBright (NYSE: SBX), Seattle Genetics (Nasdaq: SGEN), Signature Bank of NY (Nasdaq: SBNY), Silicon Image (Nasdaq: SIMG), Stepan (NYSE: SCL), Sterling Fin'l (Nasdaq: STSA), Sun Communities (NYSE: SUI), Sunoco Logistics (NYSE: SXL), SuperMedia (Nasdaq: SPMD), Supertex (Nasdaq: SUPX), Supervalu (NYSE: SVU), Tanger Factory Outlet (NYSE: SKT), Taser (Nasdaq: TASR), Taubman Centers (NYSE: TCO), Teck Resources (NYSE: TCK), Tellabs (Nasdaq: TLAB), Temple-Inland (NYSE: TIN), Tennessee Commerce (Nasdaq: TNCC), Teva Pharmaceutical (Nasdaq: TEVA), Nasdaq OMX (Nasdaq: NDAQ), Thermo Fisher Scientific (NYSE: TMO), Trimble Navigation (Nasdaq: TRMB), Trustmark (Nasdaq: TRMK), US Lime & Minerals (Nasdaq: USLM), UBS (NYSE: UBS), Ultimate Software (Nasdaq: ULTI), Umpqua Holdings (Nasdaq: UMPQ), UnderArmour (NYSE: UA), Unisys (NYSE: UIS), United States Steel (NYSE: X), Unitil (NYSE: UTL), US Ecology (Nasdaq: ECOL), USANA Health (Nasdaq: USNA), Valero (NYSE: VLO), VASCO Data Security (Nasdaq: VDSI), VisionChina Media (Nasdaq: VISN), Vocus (Nasdaq: VOCS), Washington Banking (Nasdaq: WBCO), Websense (Nasdaq: WBSN), Western Union (NYSE: WU), Whitney Holding (Nasdaq: WTNY), Wilshire Bancorp (Nasdaq: WIBC), World Acceptance (Nasdaq: WRLD), Wright Express (NYSE: WXS) and Zix Corp. (Nasdaq: ZIXI).
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