Weak Stock Market Weighs on Consumers

By: Michael Vodicka

“But it’s not just consumers that are feeling the heat, it also looks like businesses are taking a more tepid approach to spending.”

The strong stock market of 2012 has been a huge source of confidence for consumers, with the averages hitting fresh multi-year highs in April supporting more discretionary spending. But it looks like the market is once again squarely mired in the “sell in May” philosophy, suffering a fairly brutal sell off through the first three weeks of the month on growing uncertainty about Europe and the fate of Greece.

That sudden deterioration seems to have had a fairly sharp impact on consumer sentiment, which had been holding up strong for most of the year on the bullish stock market. That shift in sentiment was on display with the Bloomberg Consumer Comfort survey, dipping to a 4-month low of minus 44 for the period ended May 20. The weakness came fast and hard, slumping more than 12 points over the last four weeks and wiping almost the entire year of gains.

But it’s not just consumers that are feeling the heat, it also looks like businesses are taking a more tepid approach to spending. The Commerce Department’s report from this morning reveals that capital equipment spending for things like new computers and machinery fell for a second month. The Commerce Department also noted that non-defense spending was down 1.9% in April after a 2.2% decline in March, the first two-month setback in almost a year.

So as you can see, after a strong year of stocks gains supported consumer sentiment, the tide appears to be shifting a little bit ahead of summer.

Reasons for Optimism?

But looking forward, it’s not all about stocks, there are actually a few reasons to be optimistic that consumer confidence and spending will stay strong. The first is lower gasoline prices, where prices have recently retreated with the market after crude dipped below $90 on general equity weakness and less uncertainty in Iran.

Employment actually looks to be holding pretty strong too, with this morning’s jobless claims number holding mostly steady from the last few weeks. Granted, the pace of jobs growth is slower than everyone would like to see, but at least initial jobless claims are no jumping as companies choose to temper productivity.

In terms of the threats, the story out of Europe is fairly dire. Ultimately, no one knows what will happen, but uncertainty in and of itself is bad for confidence. And if that lack of confidence fuels more weakness in the stock market, you have a virtual self-perpetuating cycle feeding off itself.

The Big Picture

Bigger picture, consumer spending has been pretty strong this year. Consumers have reloaded on bigger ticket items like computers and cars and also splurged a little bit for more discretionary items like clothes and shoes. For the time being, that short-term sugar high appears to be cooling a bit as stocks suffer their biggest pullback of the year. But moving forward, with gasoline prices falling and unemployment basically holding steady, it doesn’t look like spending is about to fall off a cliff.

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 GroupMONEY 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 as well as in each issue of Retail Minded Magazine

**Follow Michael on Twitter @mikevodicka


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