Why Spain outperforms other developed markets

Part 4

Consumer confidence is up, but spending is still down in Spain

When will the consumer come back to Spain?

Consumer confidence is an important indicator to follow, as it measures the pulse of an important driver of the economy, the end consumers whose demand creates businesses. As with other economic indicators discussed in this series, it’s not so much the level of an indicator that’s important for investing as it is the trend and the rate of change.

2013 10 17 spain4Enlarge Graph

Consumer confidence in Spain is measured by survey calls of households. The lowest reading came in July 2012 at 37.6. A score of 100 is neutral, above 100 is confident, and below 100 is unconfident about the state of the economy. Consumer confidence was 69.8 in October—which, although still low on the scale, represents five straight months of improvement. This is bullish for retail and consumer stocks going forward.

Retail sales are a measure of consumer spending that, unlike consumer confidence, gives investors a more straightforward look at what’s actually occurring in an economy. However, the measure is obviously of past sales, meaning it’s a coincidental indicator that better serves as a confirmatory signal of a recovery. Retail sales grew 3.8% in September, which is a big jump from the subdued monthly growth seen since the -12.1% drop in the fall of 2012. The trend is also mostly positive, with three months of negative growth since in the last 12 months. This growth is by no means robust, but it does imply that the Spanish economy is pulling its way out of the hole it found itself in back in 2012.

Although Consumer Staples and Consumer Discretionary stocks represent only 7% of the iShares MSCI Spain Capped ETF (EWP), consumer confidence and retail spending are still important to track in order to get a full picture of the state of an economy.

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