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How a Drop in the Consumer Comfort Index Affects Department Stores

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Aug. 11 2015, Updated 9:05 a.m. ET

Consumer comfort drops

The Bloomberg Consumer Comfort Index declined to 40.3 in the week ended August 2 on a week-over-week basis. The index stood at 40.5 in the previous week. The latest data for the Bloomberg Consumer Comfort Index came out on August 6. The reading in the week ended August 2 was the second-lowest since November last year.

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About the index

The Bloomberg Consumer Comfort Index gauges consumer sentiment based on survey respondents’ perceptions about three things:

  1. the state of the economy
  2. an evaluation of personal finance
  3. the timing of purchasing goods and services

The index is a four-week moving average and ranges from zero to 100. It’s based on a survey of 1,000 responses. The survey is conducted for Bloomberg by Langer Research Associates.

What caused the decline this week?

The decline in the consumer comfort index was caused by concerns about personal finance. Personal finance sentiment fell to 52.6 from 54.9 in the previous week. Also, opinions about the buying climate dropped to 35.5 from 36.2 on a week-over-week basis.

Respondents’ views on the state of the US economy improved to 32.7 from 30.4 in the previous week.

The consumer sentiment of individuals in the lower-income bracket declined this week while the confidence of consumers earning over $100,000 per year improved for the first time in five weeks.

Key takeaways for department stores

A decline in consumer confidence tends to negatively influence consumer spending on discretionary items like apparel and home furnishings. This might affect sales at department stores like Macy’s (M), Kohl’s (KSS) and JCPenney (JCP). Together, these department stores account for ~3% of the SPDR S&P Retail ETF (XRT). These department stores are facing intense competition from off-price retailers like TJX Companies (TJX) and Ross Stores (ROST). Consumers continue to look for bargain deals at these off-price stores.

The next part of this series discusses consumer spending and its economic impact on department stores.

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