Data Will Gauge Consumer Confidence
When nervous consumers hold on to their money, Wall Street gets nervous about profits. So the question investors hope will be answered in the coming week is: Just how nervous are consumers these days?
Two separate readings on consumers are due -- the Conference Board’s consumer confidence survey and the University of Michigan’s consumer sentiment index -- and there is reason to believe Americans are unwilling to spend as freely as businesses would like.
First, the recent surge in oil prices, which set a record high on Friday, has been seen widely as a kind of tax on consumers, reducing the amount of money they spend on goods and services.
That, in turn, threatens corporate profits at a time when companies themselves are dealing with higher energy costs. And if consumers aren’t spending money to begin with, it’s harder for companies to raise prices to compensate. Thus, profits shrink.
Economists have forecast a slight rise in consumer sentiment in both reports. Should the data come in lower than expected -- indeed, if they don’t far surpass the forecasts -- the market reaction is likely to be negative.
Other reports this week include a Commerce Department report today on new-home sales. Economists expect a slight rise in home sales, as historically low interest rates outweigh consumer nervousness.
On Thursday, the Commerce Department will report on personal income and personal spending for August. Wall Street is expecting a climb in income but less growth in spending as consumers contend with higher gas prices and higher unemployment after the hurricanes in Florida.
The final gross domestic product reading for the second quarter is due Wednesday. The GDP is expected to have grown at a 3% rate -- decent economic expansion but still less than the 4% to 4.5% that economists had hoped for at the beginning of the year.
Also Friday, the Institute for Supply Management will release its purchasing managers index, a measure of business buying and the wholesale market. Wall Street is expecting a 58.3 reading on the index for September, down from 59 in August, as higher fuel costs led to a slight decrease in business spending.
After a profit warning this month from Coca-Cola Co., PepsiCo Inc. and Pepsi Bottling Group Inc. will both issue earnings reports this week. PepsiCo on Thursday is expected to post earnings of 65 cents a share, up from 57 cents a year earlier. The company’s stock is up just 3.9% year to date, having fallen from a late July peak of $55.71 to close Friday at $48.32.
Pepsi Bottling’s earnings, due Tuesday, were expected to come in at 70 cents a share, up from 67 cents in the year-earlier quarter. The stock is up 11.3% so far this year but has dropped from a 52-week high of $31.40 in late July to Friday’s closing price of $26.99.
Investors are likely to look closely at any guidance the two companies might give on upcoming profits to see whether the soft demand Coke has experienced will cause Pepsi similar problems.
Other companies of note issuing earnings this week include drugstore chain Walgreen Co. today, expected to report earnings of 31 cents a share, and Research in Motion Ltd., the maker of Blackberry e-mail pagers, which is forecast to post earnings of 43 cents a share.
The nation’s automakers are scheduled to announce their September sales results Friday. Investors will be interested to see whether the recent downturn in demand, which caused Ford Motor Co. and General Motors Corp. to cut production this summer, will stretch into the rest of the year.
