Consumer confidence still not reflected in the high street

A perfect storm which met equity markets on Tuesday, caused by a combination of an increasing anticipation for a rise in US interest rates and comments from leading business men suggesting the world is under estimating the potential impact of another fallout between Greece and the rest of Europe. Wednesday saw equities consolidate leading to a healthier rebound on Thursday, led initially by Asian markets apparently hoping for further stimulus measures from the Chinese central bank. The modest improvement the economic data coming from the euro-zone continued on Thursday as Eurostat reported a year on year increase for industrial production ahead of market expectations.

We pointed out at the start of the month that we expect the pattern of a grind higher in equities will be punctuated by sharp corrections. A fall of 2.5% in the FTSE 100 as it seemed poised to break 7000 mark was an example in case. US markets were undeterred by a report that retail sales rose less than expected year on year for the month of February. Later on Friday we get the latest Michigan consumer confidence report, this report has shown a continued improvement in consumer confidence over the past year, despite this improvement in consumer confidence, retail sales data disappoints. Some commentators have put part of Thursday’s weak retail sales data for the month of February down to the extreme weather conditions experienced in the US. That must partly explain the weaker than expected report but this trend of increasing consumer confidence not being reflected completely in sales data is a continued anomaly. Consumer confidence improving should be put down to an improvement in employment levels and reduced prices at the petrol pump. It would appear that despite an improvement in sentiment, the general public remain cautious of over committing themselves after the pain of 2008. To get a better understanding of how weak the data is, retail sales growth in the US year on year is now back to 2010 levels.

The UK paints a similar picture as consumer confidence has grown but retail sales data has lagged. For the first time for quite a while in the US and the UK there are signs that there is some real wage growth, and as the weather improves we shall see if this starts to lead to an increase in activity in the high street. It may well be for Janet Yellen to feel fully confident the recovery is on solid ground, and strong enough to withstand a rise in rates she will want to see not only confidence in the consumer rising but activity at the cash tills as well.


Posted on March 12, 2015 .