This week's key manufacturing, construction, and labor releases

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Part 7
This week's key manufacturing, construction, and labor releases PART 7 OF 7

Why consumer confidence releases impact companies like Walgreens

Gallup’s Economic Confidence Index

Gallup’s Economic Confidence Index (or ECI) for the week ended March 30 is due for release on Tuesday, April 1. The ECI is based on telephone interviews with ~3,500 adults nationwide and the answers to two questions. The first question asks Americans to rate economic conditions in this country today, and the second asks whether they think economic conditions in the country as a whole are getting better or getting worse.

Why consumer confidence releases impact companies like Walgreens

The ECI has been negative since its start in 2008. This year, the ECI appears to have stabilized from October’s drop to -39, following the Federal government shutdown. For the past two months, the survey has ranged from -15 to -20, implying that more Americans have a negative view of the economy than those holding a positive view of economic developments. The lack of change in the reading, however, indicates that the view hasn’t undergone any significant changes over the past few months. It remains to be seen whether positive economic data releases over the next few weeks can change this perception.

The Bloomberg Consumer Comfort Index

The Bloomberg Consumer Comfort Index (or Bloomberg CCI) is a weekly indicator measuring consumer sentiment in the U.S. The Bloomberg CCI for the week ended March 30 will be released on Thursday, April 3.

Index readings over the past couple of weeks have been adversely affected by high food and energy costs wreaking havoc on lower-income budgets. Food costs have risen by an estimated 10% due to the drought in California, thought to be the driest on record. Energy costs are higher due to the impact of the severe winter, which has raised heating budgets. While food costs are expected to remain high at least in the short term, energy cost pressures are expected to abate due to the onset of warmer weather.

What do consumer confidence indicators like ECI and CCI mean for investors?

A decrease in consumer confidence implies that more Americans in general believe economic fundamentals are deteriorating compared to the fewer Americans who believe economic fundamentals have improved, and this directly impacts consumption patterns. As consumption makes up over two-thirds of the economy, a sustained increase or decrease in these variables can have significant repercussions for economic growth.

As both the ECI and the CCI are weekly indicators, they’re prone to more volatility, and week-to-week changes are unlikely to have a large impact on the prices of fixed income ETFs like the Core Total U.S. Bond Market ETF (AGG) and the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD).

A sustained increase or decrease in consumer confidence over several weeks, however, can have a more direct impact on retail sales. One ETF investing in the retail sector is the State Street SPDR S&P Retail ETF (XRT). The top ten holdings in XRT include national retailer Walgreens (WAG), at 1.19%, and apparel company Abercrombie & Fitch (ANF), at 1.24%.

To learn more about investing in fixed income ETFs, see the Market Realist series Why refinancing deals crowded the high yield bond market.


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