Why Consumer Confidence Is A Key Indicator For US Steel Investors
Consumer confidence index
In the previous parts of this series, we saw the uptrend in the construction industry. Let’s now look at the US consumer confidence index. It helps you get a sense of consumer sentiment. The data is compiled by the University of Michigan and Thomson Reuters, and it’s reported monthly. Let’s look at the latest trend in this index.
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Consumer confidence fell
The chart above shows the trends in the US consumer confidence index. The latest reading is 93.6. This is down sharply from the reading of 98.1 in January. However, this is the third straight month where the consumer confidence index has been above 90. The consumer confidence index was last above 90 in July 2007.
But why is the consumer confidence index a key driver for steel companies? Let’s take a closer look.
Real estate and the automotive industry are two of the biggest steel consumers in the US. Both these industries deal with high-value products. Most real estate sales are driven by financing via banks. The same is true for vehicle sales, for which investors approach banks and financial institutions to fund their purchases.
To get into a long-term commitment like buying a house or a car, consumers need to have some degree of confidence about their future income. A higher consumer confidence index thus bodes well for automobile and real estate companies.
Steel companies like AK Steel (AKS), U.S. Steel (X), ArcelorMittal (MT), and Steel Dynamics (STLD) benefit from higher consumer confidence. Currently, US Steel forms 2.86% of the SPDR S&P Metals and Mining ETF (XME).
The automobile industry is the second-biggest steel consumer. Let’s analyze the trends in the US automobile industry in our next part.