Why is consumer perception important
As we discussed in the previous part of this series, the United States is highly dependent on consumer spending, and consumer perception acts as an indicator of consumer spending in the future. If a lot of consumers are optimistic about the future of the economy, consumer spending is higher, and with a pessimistic perception of the economy, spending is lower. As consumer confidence is a highly volatile indicator, we should always look at the trend rather than a single period’s data to get a better understanding of where the economy is headed. Let’s have a look at the trends of two highly regarded indexes of consumer confidence to see what are they indicating.
The Conference Board Consumer Confidence Index has shown a considerable increase of 1.7 points for the month of September, rising to 103 from 101.3 in August.
In the above chart, it’s clear that consumer confidence has picked up substantially after falling in the second quarter of the year. This suggests an improving economy, but the University of Michigan Consumer Sentiment Index is indicating something else altogether. Consumer sentiment fell from 91.9 to 87.2 in September due to volatile global conditions. This statistic points towards mixed US consumer views and raises questions on the direction of future consumer spending.
Consumer confidence impacts the consumer discretionary sector the most, which includes companies such as Netflix (NFLX), Dollar Tree (DLTR), Ross Stores (ROST), and Supervalu (SVU). For exposure to these stocks you can invest in the SPDR S&P Retail ETF (XRT).
In the next few articles, we’ll look at labor data.