DOW Soars On Consumer Report
by Hiland Doolittle
Consumer Confidence Spurs Big Move
The U.S. Consumer is hard to read and apparently harder to predict. The Conference Board Consumer Research Center released surprising numbers on Tuesday and Wall Street reacted strongly to the news.
The Board reported a sharp upward spike in consumer attitudes and after weighing in on the Board’s various consumer attitudes said its index rose to 54.9 in May from a 40.8 rating in April. The market had expected a rise to 42.0. The rise marked the second increase in as many months.
The May increase was the biggest one-month gain since April 2003 and comes just three months after the index bottomed at a new low of 25.3 in February. The 54.9 rating is the highest since September 2008 when consumer attitudes hit 61.4.
The news was welcomed by the retail sector and sparked a surprising and unexpected rally on Wall Street. The DOW Jones jumped 196.1 points or 2.37% settling at 8437.49. The S&P 500 rose 2.63% and the Nasdaq composite jumped 58.42 points or 3.45%. Bond prices fell pushing the yield on the 10 year Treasury up to 3.5%.
Consumers Overlook Housing and Unemployment
The spike in consumer attitudes, which indicates the consumer’s readiness and willingness to purchase goods is contrary to the expected rise in unemployment and Tuesday’s discouraging real estate news from Standard and Poor’s.
Consumers are encouraged by the two-month rally in equities and by the Treasury’s handling of the banking crises. The rise in consumer attitudes was reflected in solid earning reports from Sears Holdings Corp. and Gap, Inc.
On Tuesday, retailer stocks benefited from the consumer confidence report. Macy’s rose 55 cents or 4.9%, Best Buy improved 5% or $1.77 and KB Home rose 80 cents or 5.5%.
Consumer spending comprises more than two-thirds of the U.S. economy. While confidence may be rising, major purchase levels remain stagnant. Auto sales, appliances and home equipment sales continue the slow pace. The number of Americans reporting their intent to purchase a vehicle within the next six months rose to 5.5%, the highest level in a year.
10.25% of Americans surveyed reported expectations for a pay increase within the next six months. Meanwhile, only 2.3% expect to purchase a home in the next year.
Real Estate Prices Plunge
The consumer confidence report caught markets by surprise because of the negative real estate market report. The residential home values are mired in an extended slump. A report from Standard & Poor’s Case-Shiller Index sates that the average selling price of a single family home in March fell by 18.7% in year-over-year sales. First quarter sales dropped 19.1%. That decline was the biggest fall in the past 21 years.
Since market highs in 2006, prices have declined by more than 32.2% and are now comparable to 2002 price levels. In the past, consumer confidence has been linked to the rise and fall of home values. Many Americans still regard their homes as their most substantial investment.
Gary Thayer, a Wells Fargo senior economist, offered the following analysis; “A large oversupply of homes and tight credit continue to put downward pressure on prices… While consumers are unhappy about their job situation and their home values, they see light at the end of the tunnel.”
Unemployment Going Higher
The Consumer Confidence survey is the result of the polling of more than 5,000 U.S. households until May 19, 2009. 20% of those polled expect more jobs to become available. This marked an increase of almost 6%. 25.2% expect the job situation to worsen. In April 32.5% saw unemployment rising.
Analysts project a net increase in unemployment of 523,000 in May resulting in a 9.2% unemployment rate. Americans expect to stay cautious about unnecessary spending.
The Director of the Conference Board Consumer Research Center issued this statement; “While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us.”
Tags: 2009 Stimulus Package, Economy, housing, interest rates, recession, Stimulus Plan, Technical Analysis, US Dollar, US GDP, US NonFarm Payrolls, US Retail Sales, US Unemployment
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
