University of Michigan Consumer Sentiment Index Rises



Recent index level

On October 16, 2015, the University of Michigan released its consumer sentiment index. It measures consumer confidence on a monthly basis. The index rose 4.9 points to reach 92.1 for October. October also saw a rise in consumer confidence, which had fallen for three consecutive months. The index rose 5.6% on a month-over-month basis and 6.0% on a YoY (year-over-year) basis.

As you can see in the above chart, the October numbers don’t show a dramatic rise, but they do indicate consumer optimism regarding the future of the economy, which is a positive indicator for retailers such as Macy’s (M), Kohl’s (KSS), Walmart (WMT), and Amazon (AMZN), as the holiday season is right around the corner.

Article continues below advertisement

How important is the holiday season for retailers?

The holiday season, which is the most important season for retailers in terms of sales, starts two or three weeks before Thanksgiving. However, in recent years, most retailers have sought an early advantage over competitors by kick-starting their campaign long before the weeks before Thanksgiving. For example, Walmart (WMT) started its holiday season campaign in early September, and other retailers have followed.

Retailers have already started ramping up their services to cater to the high flow of orders in the holiday season. Macy’s (M) stated that it will employ close to 85,000 seasonal employees for the upcoming season. Retailers such as Amazon (AMZN) and Walmart (WMT) are leaving no stone unturned to speed up deliveries to customers.

Why is so much preparation needed? The answer is that ~30% of retailers’ annual sales happen during the holiday season, according to the NRF (National Retail Federation). The NRF has estimated 3.7% YoY growth in holiday sales. When combined with rising consumer confidence, this is a highly positive indicator for retailers.

To get exposure to US retail stocks, you can invest in ETFs such as the SPDR S&P Retail ETF (XRT), the Fidelity MSCI Consumer Discretionary ETF (FDIS), and the Vanguard Consumer Discretionary ETF (VCR).

In the next part, we’ll a look at initial jobless claims.


More From Market Realist