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The Bloomberg Consumer Comfort: Challenges for the consumers

Phalguni Soni

Do last week’s economic releases support the Fed’s tapering stance? (Part 4 of 10)

(Continued from Part 3)

The Bloomberg CCI

The Bloomberg Consumer Comfort Index (or Bloomberg CCI) is a weekly indicator measuring consumer sentiment in the U.S. The Bloomberg CCI was released on Thursday, March 20, for the week ending March 16.

What is the Bloomberg CCI?

A weekly release conducted by Langer Research Associates, the Bloomberg CCI is a measure of how Americans view the economy. The CCI is based on 250 random-sample telephone interviews conducted weekly. The index values are computed based on a four-week rolling average of interview responses. The survey interview seeks the views of respondents on three major issues: How Americans rate the U.S. economy, whether consumers should schedule purchases that are needed by them at the current time or postpone them and the state of their personal finances. The proportionate number of negative views on the above issues is subtracted from the share of positive views and the result divided by 3. A reading of 100 indicates that every single survey respondent had a positive view, whereas a reading of -100 indicates the opposite.

Americans most pessimistic this week compared to the past four months

Consumer sentiment declined this week, as represented by the lower Bloomberg CCI reading of -29 compared to -27.6 last week. The Bloomberg CCI had been increasing since February 9, 2014, and this was the first reversal since then. Only 24% of survey respondents indicated an improvement in the nation’s economy, the lowest number since last November, compared to 36% of survey respondents indicating a negative view of the economy.

Two of the three sub-indices on which the headline Bloomberg CCI reading was based, posted declines:

  • The sub-index measuring how Americans view the economy declined from -48 last week to -49.6.
  • The sub-index measuring personal finances declined from 4.3 last week to 0.7 for the week ended March 16.

“The latest results may mark the impact of challenges, including higher home-heating prices during the long winter, a sharp increase in food prices tied to California’s drought and the rising price of gasoline,” said Gary Langer, President of Langer Research Associates LLC, New York. Langer Research conducts the survey for Bloomberg.

Rising costs of food and energy made their impact on lower-income households with the index measuring sentiment levels for consumers earning less than $15,000 p.a. declining for the first time in six weeks. Consumer sentiment levels for Americans earning over $100,000 p.a. remained unchanged. This was reflected in the sub-index measuring buying climate which rose to -39.3 last week to -38.1 for the week ended March 16.

An increase or decrease in consumer sentiment would affect discretionary consumption expenditures. One ETF that invests in the consumer discretionary sector is the State Street SPDR S&P Retail ETF (XRT), which comprises the retail sub-industry portion of the S&P TMI. Top ten holdings in XRT include the national retailer, Walgreens (WAG) and online travel companies, Expedia Inc. (EXPE) and TripAdvisor, Inc. (TRIP).

This week’s Bloomberg CCI release is less likely to affect fixed income ETFs. Two ETFs that invest in fixed income securities are the Vanguard Total Bond Market ETF (BND), which primarily invests in investment-grade bonds in the U.S. with a maturity in excess of one year and the Vanguard Mortgage-Backed Securities Index Fund (VMBS), which has exposure to investment-grade fixed-rate mortgage-backed pass-through securities of GNMA, FNMA, and FHLMC.

The implications of the Bloomberg CCI survey and their effect on the ETFs are discussed in Part 5 of this series.

Continue to Part 5

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