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The preliminary readings from the University of Michigan Surveys of Consumers improved marginally in August.  This marginal uptick is not being confirmed by Mr. Market – XLY is the worst performing sector today.  Furthermore, the two most important indicators in the national economy today – jobs and housing – are indicating that the narrative of recovery is, in fact, a fallacy.

The University of Michigan “preliminary” index of consumer sentiment climbed to 69.6 following 67.8 in July (which was the lowest since November 2009) and consensus of 69 (according to Bloomberg).  The measure of current conditions rose to 78.3 from 76.5 last month and the measure of consumer expectations for six months from now, increased to 64.1 from 62.3. 

The Consumer Sentiment Index is down 4.0% YTD and still 28% below the peak level of the chart - January 2007.

The big positive for the country over the past couple of weeks has been the developments in the Gulf and the positive spin around the cleanup efforts.  Aside from that there is not much else to write home about. 

The August preliminary reading might be a welcome sign for the “back-to-school” season, but it’s still going to be a hit-or-miss back-to-school season for some retailers, as suggested by advance retail sales figures reported today.  Consumers continue to send mixed signals when it comes to the economy and spending.

A separate survey by the Prosper group done in the month of August suggested that a recovery is down the road “when 40.6% feel worse off financially compared to a year ago” and “only one in ten says they are better off.” 

Lastly, while prices at the pump are only up $0.14 YoY, 68.1% of consumers surveyed say gas prices are still impacting their purchase decisions.

Despite the slight uptick in consumer confidence, the Consumer Discretionary (XLY) is the worst performing sector today.  We remain bearish on the intermediate term TREND for consumer spending.

Howard Penney

Managing Director


CONFIDENCE - GASPING FOR AIR - current conditions