Consumer Confidence Holding Strong

2012 was supposed to be a bad year for stocks and the economy. The majority opinion was that issues in the Euro zone and China would weigh on growth and curb the market. But just like we’ve seen so many times, the moment when everybody finally agrees on something is the exact moment the tide is about to shift.

This time around it was the best first quarter in 14 years for the S&P 500, with stocks cranking out huge gains in just 12 weeks after returning exactly 0% in all of 2011. That went a very long way to support consumer confidence and spending, both hitting multi-year highs along the way.

But the market has cooled since then, pulling back sharply in April on yet another flare up in the Euro zone. So is the recent bout of volatility spooking consumers?

Consumers Still Feeling Good

According to the conference board, not at all, with its April read on consumer confidence coming in ahead of expectations and holding near a 4-year high. Other consumer indices are singing the same song. The Bloomberg Consumer Comfort Index from mid April matched its highest level in four years, while the Thomson Reuters/UMichigan Consumer Index showed only marginal deterioration from last year.

So for the time being, in spite of some short-term weakness in the stock market, the consumer mood appears to be fairly upbeat. That’s great news for the small-business owners of the world and big companies alike, where bellwethers Microsoft Corp (MSFT) and General Electric (GE) both just reported excellent first-quarter results.

Obstacles Ahead

But moving forward, just as we discussed last time, a number of challenges remain. Like housing. The S&P/Cash Schiller Housing Index just showed home prices hitting a new 10-year low. Home prices have a huge impact on consumer spending, so every time another negative headline hits the Street it weighs on sentiment.

Employment trends will also be a factor. One of the big surprises of 2012 has been the strongest jobs growth since the financial implosion of 2008, going a very long way to support consumption. But the April jobs report fell to its slowest growth in 5 months, so if that trend continues to cool into summer, a seasonally weak time for employment anyway, it won’t do much to lift the mood.

Energy costs will also be a hot topic, with gasoline topping $4 a gallon in certain parts of the country. That’s a bad sign heading into summer, a time of peak gasoline consumption as people take to the road for vacations and family parties. And if we see more political volatility in the Middle East, it’s anyone’s guess where prices are headed.

So in  spite of the great start to the year for the economy, jobs and consumer spending, as always, it feels like there are many warnings signals. For the time being, neither the economy nor consumers are showing many signs of weakness. But like we’ve seen so many times over the last few years, that can change quickly, so it always makes to be prepared and stay nimble.

Auth

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on RetailMinded.com as well as in each issue of Retail Minded Magazine. 

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