As the dog days of August roll in, Wall Street is wading through a series of conflicting reports on the American consumer, whose willingness to keep spending has been a life jacket against the rising tide of unemployment. A consumer retreat could stop the forecasted economic recovery in its tracks.
Last week the Conference Board reported that its consumer confidence index had fallen 6.9 points in July to 76.6, from 83.5 in June. "We've seen that jobs were harder to get in July than they were in June," Lynn Franco, the director of the Conference Board's Consumer Research Center, told
in an interview. "Until you have sustainable job growth in the economy, consumers aren't going to be happy."
Three days later, mixed employment data reinforced Franco's statement, with the unemployment rate falling slightly but payrolls also contracting. On the same day, the University of Michigan reported that its consumer sentiment index rose in July, up to 90.9 from 89.7 in July. Another measure, the consumer comfort index, a gauge published weekly by
, improved for the week ended July 26, from minus 21 to minus 17, and held steady the next week. In the first week of July, the index was at minus 18.
So, to recap, in July consumers grew less confident, their sentiments improved and ... they became a little more comfortable?
"You can get whatever story you want by looking at those data," said Mike Niemira, vice president of Bank of Tokyo-Mitsubishi. "I think leading indicators are usually more telling than the opinion-driven polls."
In the end, the pollsters and economists had little to teach investors, and it was retailers that showed them the money. Across the board, America's chain stores posted solid gains in July, and many raised their outlooks for the year. Sales at
grew 12%, sales at
rose 11% and sales at
were up 21% for the month.
The picture was almost uniformly bright.
"It was a good
retail performance for loads of reasons, and I think it is an omen of things to come," Niemira said. "This was the best performance in the sector since June of 2002, and I think the underlying reason is stabilization in the economy and acceleration. We won't see the same pace in August, but this is sustained improvement."
According to a poll of 77 retailers conducted by the Bank of Tokyo-Mitsubishi, retail sales grew 4.3% in July on a year-over-year, comparable-store sales basis. This far outpaced the 1.7% growth rate seen from January through June. In department stores, the 1.5% comparable-store growth rate in July was the first increase and strongest growth rate seen in that segment since November of 2001.
When asked about the conflicting consumer reports for the month, Niemira said that he uses consumer gauges to look at broad turning points in attitudes, but their "individual wiggles" often hold little significance.
Franco says the Conference Board's consumer confidence index is more indicative of conditions in the labor market than the retail sector. The index consists of a combination of an expectations index, gauging consumers' attitudes about the future, and a present situation index, which looks at current conditions. July's drop in the overall index was mainly due to a drop in the expectations index, which fell from 96.4 in June to 86.4. The present situation index only fell 2.3 points, to 61.9 from 64.2.
"This reflects uncertainty about the future due to a stagnant job market," Franco said. She said that a drop in confidence due to uncertainty about the future does not necessarily mean consumers will stop shopping.
"During the economic recovery of the early 1990s, the labor market didn't gain momentum until 1994," Franco said. "That's when consumer confidence began to pick up."
In August of 1990, when Iraq invaded Kuwait, the consumer confidence index fell from 101.7 to 84.7, and it reached a low of 47.3 in February of 1992, after the Gulf War. Recovery from the recession began in the fourth quarter of 1991, but the index never broke 100 until November of 1994. This time around, the index fell from 114 to 97 in September of 2001 when terrorists attacked the World Trade Center and the Pentagon. It broke 100 again in March of 2002 but fell from 106.3 to 97.4 in July, reaching a low of 61.4 in March of 2003, when the war in Iraq began.