Consumer sentiment up on major household items

Family finances viewed as improving.

In between reporting seasons it is hard to say how well retail companies are doing since their last earnings were released, but you can look at consumer sentiment to see what consumers are doing and what may be driving them. This helps you gauge how your portfolio stocks may behave.

The Index of Consumer Sentiment put out by Westpac (ASX: WBC) and The Melbourne Institute showed a slight drop in October, but still the uptrend that started in October 2011 remains intact, and stands at 108. A score of 100 is the balance of pessimistic and optimistic views, and above 100 means there are more optimists than pessimists in the survey.

Although respondents still had a pessimistic view of their current family finances, the figure improved from 82.6 to 87.7 over the past year. Their view of family finances over the next 12 months moved to the optimistic side from 98.9 to 108.5.

That upbeat view is also evident in their increased belief that it is a good time to buy a major household item, though buying a car was flat compared to last year in October. Their view on the time to buy a dwelling was still optimistic, but 7% down from last year — from 139.8 to 130.

That means there is still some reservation about the strength of the current economic recovery, but shoppers will be heading back to the stores. Lower interest rates are helping, but other factors like job security and company business confidence are hampering consumers.

The S&P ASX 200 Consumer Discretionary Index (ASX: XDJ) is up 50% since June 2012, and during that time household goods and electronics retailer Harvey Norman (ASX: HVN) has risen about 56% to $3.13 a share. Its leader, Gerry Harvey, would like to see interest rates cut further before Christmas to give sales a boost in light of the economic uncertainty.

Super Retail Group (ASX: SUL), which operates Supercheap Auto and sells outdoor and sports items, has jumped up about 85%, however it did acquire Rebel Sports and Amart All Sports in 2012, so that also affected overall earnings expectations and share price.

Department store retailers David Jones (ASX: DJS) and Myer Holdings (ASX: MYR) have risen only around 22% and 6.7% respectively in share price since the end of June 2012.

Foolish takeaway

Investors have to keep up with market and economic news when the companies themselves aren’t reporting sales data. Spending even an hour a week reading company and related industry news articles will keep you up to date on what’s happening.

You will also have a better sense of when your stocks are performing better than their peers, or when they are starting to show weakness, and may need a closer review or ultimately removal from your portfolio.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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