We stay focused on CONFIDENCE because it is an important factor in the Research Edge MACRO models.

Last Friday when I wrote the Early Look, it was all about CONFIDENCE.  As I said then, and I'll say again, the improvement we have seen from the lows in January are over for the time being.  With mortgage rates and gas prices on the rise and a 25-year high in unemployment, consumer's personal and financial issues will become more of a concern. 

On Tuesday, the ABC confidence figures were released, which showed the Consumer Comfort Index fell to -49 from -47 the prior week.   The survey's reading has not been in positive territory for over two years and has been stuck in a seven-point range since reaching the year-to date high in early May.   The index ranges from -100 to +100 and reached a record low of -54 for the week ended Jan. 25.

Over the past week the S&P 500 has declined 2.9% and Consumer Discretionary (XLY) has declined 5.1%; the second worst performing sector.  The underperformance in consumer names and the market overall will only dampen confidence expectations in the coming months.    

Lastly, we continue to see sluggish sales trends in the Restaurant Industry.  Today it was reported that average Casual Dining Chain saw 6.7% decline in same-store sales in the month of May.  While the 2-year numbers improved sequentially, sales trends are still ugly (but off the lows seen in 4Q09).  As a side note, as gas price rose during the month, sales trends got worse sequentially each week. 

Consumer eating habits are just another barometer of CONFIDENCE!

Howard Penney

Managing Director