Consumers Are Back
Consumer Sentiment readings from the University of Michigan last Friday were nothing short of remarkable. The headline number climbed to its second highest level since 2004. The driving forces are increased optimism over jobs, wages, and higher after-tax pay.
The highlight of the report:
“The highest proportion of households since 1998 reported that their finances had improved compared with a year ago and anticipated continued gains during the year ahead.”
It’s not just the surveys; Americans continue to stampede into stores and malls with a newfound swagger.
Last week, we saw amazing action in brick-and-mortar stocks from department store names such as Macy’s (M), Dillard’s (DDS), Kohl’s (KSS), and specialty retailers T.J. Maxx (TJX) and Gap Stores (GPS). One of the underlying storylines here is brick-and-mortar survivors are beginning to learn how to compete with Amazon. Their secret is perfecting the Omni-Channel approach, which leverages existing physical locations with their digital efforts.
Thus far in 2018, the second-best performing sector is consumer discretionary. but I should point out three of the top five winners are all digital. In other words, there’s room for everyone to make money when the consumer feels flush.
While we know the consumer is 2/3 of the economy the difference maker is when big business starts humming. Right now, that’s exactly what’s happening as we found out manufacturing is at its best level since May 2011. The Institute for Supply Management (ISM) report saw 15 out of 18 industries enjoy growth in February.
The employment component was the highlight, which surged 5.5%, offsetting declines in new orders and production.
Speaking of jobs, this week, we get employment data for last month. At this point, Wall Street isn’t sure what to root for because the January beat of 200,000 jobs and stronger wage growth spooked the folks in those ivory towers that think Americans are making too much money.
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