Consumer Confidence Disconnect

A couple of contradictory news items came across the wires yesterday, leading me to wonder whether American consumers had simply, collectively turned into a bunch of barking lunatics.

The Conference Board, a private group that tracks consumer confidence, released its findings yesterday, stating that the index had reached its highest level in more than two years. Where analysts expected the number to come in at about 95, it shot off the charts, increasing from 93.1 in May to 101.9 for June. The last time the Conference Board number was this high was June 2002, when it printed at 106.3. Sort of makes me wonder what was so great about June 2002, but there you go.

We can talk about the fact that oil prices are still sky-high, that other goods, commodities, and services are at multiyear peaks, or that the easy money from housing refinancing seems likely to peter out as the Federal Reserve raises overnight rates, finally. That's all interesting, and it's all germane in ways that even the smartest of us will never fully understand.

Here's what I want to know: If consumers are so confident, then why in the world are the biggest retailers and durable goods manufacturers getting plastered? In the past week, retailing giant Target (NYSE: TGT) warned that its sales are light, which we could conceivably make the case (not that I would) for being company specific. But when Wal-Mart (NYSE: WMT) makes the same reductions in sales forecasts, I wonder what that could possibly say about the true measure of consumer confidence. Are they confident because they're spending so much more money at the gas pump? Wal-Mart CEO Lee Scott says that the higher gas prices take out on average $7 in household weekly budgets.

Of course, even though at $258 billion in annual revenues Wal-Mart can be considered a viable proxy for true consumer confidence, it is possible that its cut-price image gives the giant's operations a sort of countercyclicality. Consumers who feel flush with cash may choose to be a little less price-conscious and, thus, would buy goods at a Best Buy (NYSE: BBY) or a Lowe's (NYSE: LOW) rather than at Wal-Mart. But wouldn't Target be a logical beneficiary if this were the case?

Unlike many market commentators, I don't tend to give the average consumer a great deal of faith in predicting where the economy is going. Consumer confidence numbers track along nicely over time with such things as cheap, available leverage as they do with actual gains in financial standing. But this month's dichotomy really has me scratching my head. If we're willing to open up our wallets in June that much more than we were in May, then where the heck is all of this opening going on? If Wal-Mart's sales are slowing, that directly or indirectly impacts, oh, about half of all publicly traded companies.

Bill Mann owns none of the companies mentioned in this story. He's not among the ranks of giddy consumers, either. For a monthly sampler of companies that generate income for their investors, consider a free trial to Mathew Emmert's Income Investor.