Low Confidence Hurts Consumer Goods

Joel Anderson |

The Conference Board's consumer confidence index fell to 39.8 for the month of October, showing that the lack of confidence in the labor market could prolong the economic recovery as consumers continue to cut back spending.  Consumer goods companies of all stripes were affected by the report on Tuesday as stocks fell across the board.

Consumer Confidence Index Below Expectations

 

The consumer confidence signaled panic in investors, who interpreted the decline as a further indicator of the stalling U.S. economic recovery.  The figure was the lowest recorded since March of 2009, and could more easily be associated with a recession than a recovery.  Economists had expected better numbers with the average closer to 47 than 39, but the Conference Board's report showed that concerns surrounding the weak labor market continue to weigh on the collective consciousness.  This months survey saw 47.1 percent of respondents saying that jobs are "hard to get" to only 3.4 percent feeling that they were "plentiful."  Consumers also offered up a dreary outlook for the future, with 27.4 percent believing that there will be fewer jobs in the next six months to only 11.3 percent that believe employment will increase.  Consumers also see their incomes shrinking and their investments losing value over the next year, with more than half of the participants convinced stock prices will be lower by this time next year.

Consumer Goods Feel the Pinch

Low consumer confidence is likely to affect a broad swath of consumer goods companies, and trading Tuesday seemed to reflect the gloomy outlook.  Cigarette makers like Phillip Morris, Inc. (PM), The Altria Group, Inc. (MO), and Reynolds American, Inc. (RAI) all took hits on Tuesday. Reynolds American registered the steepest losses, shedding 3.38 percent of its value. Wednesday morning trading saw mixed results as Reynolds continued to decline and Phillip Morris edged back higher.

Major conglomerates lost value Tuesday as well but many of the companies reversed their trajectories in Wednesday morning trading.  Johnson & Johnson (JNJ) was down 1.61 percent Tuesday but made a partial recovery in morning trading alongside the potential resolution of the European debt crisis.    The Procter & Gamble Company (PG) lost 1.32 percent yesterday and continued to decline Wednesday.  Food giant Kraft Foods, Inc. (KFT) was down 0.99 percent, as was British-based Unilever plc (UL), which lost 1.25 percent.  Both companies were largely flat Wednesday morning. Beverage maker The Coca-Cola Company (KO) also felt the pinch with a 1.36 percent drop that continued into morning trading. Auto manufacturer Toyota Motors (TM) had a rough day Tuesday, opening down and finishing the day with a 2.51 percent loss. Toyota reversed some of the losses early in today's session.  While the consumer confidence index would seem to hit automakers hardest, General Motors (GM) and Ford Motor Company (F) managed to hold their value after early sell offs on Tuesday, though Ford saw early losses Wednesday morning after only managing to meet expectations of $0.46 EPS in their Q3 earnings reports.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
F Ford Motor Company 12.03 -0.14 -1.15 13,383,128
GM General Motors Company 31.92 -0.20 -0.62 6,162,324
JNJ Johnson & Johnson 117.83 -0.98 -0.82 2,418,449
KO Coca-Cola Company (The) 42.23 -0.51 -1.19 6,018,136
MO Altria Group Inc. 63.30 -0.57 -0.89 1,773,481
PG Procter & Gamble Company (The) 88.18 0.42 0.48 25,429,306
PM Philip Morris International Inc 99.67 -0.82 -0.82 1,523,767
RAI Reynolds American Inc 48.07 -0.51 -1.05 1,602,159
TM Toyota Motor Corporation 117.30 -0.36 -0.31 93,432
UL Unilever PLC 46.74 -0.28 -0.60 408,343

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