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Is US Consumer Sentiment Turning Pessimistic?

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Nov. 6 2015, Published 1:01 p.m. ET

Bloomberg consumer comfort index fell to 41.1 for the week ended November 1

Consumer expenditures account for over half of US GDP (gross domestic product). Released weekly, the Bloomberg Consumer Comfort Index helps in understanding household spending. The index fell for the third straight month to 41.1 for the week ended November 1, 2015, against 42.8 in the previous period.

Though consumer sentiment remains low, the First Trust Consumer Discretionary AlphaDEX ETF (FXD) and the Consumer Discretionary Select Sector SPDR ETF (XLY) have gained 0.79% and 0.77%, respectively, over the past week as of November 5, 2015.

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Pessimism surrounds consumer confidence in October

The component measuring Americans’ views of the economy fell to 31.9 from 34.8 in the prior week. The index tracking the buying climate also fell to 35.8 from 36.1. The personal finances gauge also saw a fall to 55.8 from 57.6.

Though consumer confidence is falling, consumer discretionary stocks such as Michael Kors Holdings (KORS), Ralph Lauren (RL), Fossil Group (FOSL), and PVH (PVH) have gained 2.2%, 14.9%, 3.1%, and 3.1%, respectively, as of November 5, 2015.

Future expectations about economy remain weak

The Bloomberg consumer comfort index has not only stayed below its neutral level of 50 for a long time but also recorded a fall for three consecutive months in a row. A reading below 50 indicates contraction in consumer sentiment. Failing to bypass the 50 mark indicates weak sentiment on the consumer front.

Though motor vehicle demand has surged, potential buyers have stayed away from investing in homes, despite low mortgage rates. Both Bloomberg and the University of Michigan state weakness in future consumer expectations about the economy.

With consumer confidence remaining low, economic activity could derail. The Fed may consider this consumer pessimism when making its rate hike decision this December. Consumer sentiment remaining weak keeps industrial growth at lower levels.

German factory order data are out. We’ll cover this in the next article.

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