How would you react, as an investor, if you heard that consumer confidence fell during the previous month? What if you heard this in October and you knew were were headed into the holiday shopping season? This is important because a falling trend in consumer confidence may hurt the holiday shopping season. In a consumer-driven economy this is a bad sign and one that traders will be very concerned with, so it’s important to understand the impact of these numbers.
[VIDEO] Why Consumer Confidence Reports Matter
Consumer Confidence: A Glimpse Into If and How Consumers are Going to Spend Their Money
Once a month, the Conference Board gives us a glimpse into if and how consumers are going to spend their money. Traders love this information because the Consumer Confidence Survey number helps them determine if the economy is going to be expanding or contracting in the future.
The more confident consumers are in the current and future state of the economy, the more money they are likely to spend. The more money consumers spend, the more profits companies earn. The more profits companies earn, the higher their stock prices typically go. In other words, a positive Consumer Confidence Survey number typically leads to higher stock prices.
The less confident consumers are in the current and future state of the economy, the less money they are likely to spend. The less money consumers spend, the fewer profits companies earn. The fewer profits companies earn, the lower their stock prices typically go. In other words, a negative Consumer Confidence Survey number typically leads to lower stock prices.
Of course, there are certainly other factors you should be looking at when determining how Consumer Confidence is going to affect the economy so Don’t Read the News in a Vacuum.
What is the Consumer Confidence Survey Number?
The Consumer Confidence Survey™ is a survey of economic expectations conducted by the Conference Board—an independent, non-governmental organization. The survey is based on a representative sample of 5,000 U.S. households. To put it another way, the Conference Board asks consumers what their expectations for the economy are and how confident they are in the current state of the economy.
You can see the most recent Consumer Confidence report here.
Retail Stocks to Watch
The Consumer Confidence Survey number is especially important for major retailers. When you see the Consumer Confidence Survey number rising, it is a good sign for retailers and the outlook for their future sales numbers and will typically have a positive impact on the price of their stocks. When you see the Consumer Confidence Survey number falling, it is a bad sign for retailers and the outlook for their future sales numbers and will typically have a negative impact on the price of their stocks.
Here are a few of the largest retailers you should keep an eye on:
- Dillards (NYSE: DDS)
- Saks Incorporated (NYSE: SKS)
- Nordstrom (NYSE: JWN)
Image courtesy tshein.