Consumer confidence index

In the previous parts of this series, we learned about an uptrend in the construction industry and new home sales. Here, we’ll look at the US Consumer Confidence Index. This helps give us a sense of what consumer sentiment is these days. The data are compiled by the University of Michigan and Thomson Reuters and are reported on a monthly basis. Let’s look at the latest trend in this index.

Consumer confidence reaches pre-crisis levels

The above chart shows the trends in the US Consumer Confidence Index. The latest reading is 93.8. Note that this is the preliminary reading. The final reading will be released later this month. Apparently though, this is the highest reading since February 2007.

But why is rising consumer confidence a key driver for steel companies?

Confidence leads to high-value purchases

Real estate and automotive are two of the biggest steel-consuming sectors in the US economy. Both are high-value purchases for consumers. And most real estate sales are done through mortgage financing by banks. The same is true of vehicle sales. Investors approach banks and financial institutions to fund their purchases.

To enter into a long-term commitment like buying a house, or a car, investors need to have some degree of confidence about their future income. With the US economy growing at a decent pace, and unemployment levels at historically low levels, US consumers appear to be quite hopeful about their future.

This is a positive sign for steel players such as U.S. Steel Corporation (X), ArcelorMittal SA (MT), AK Steel Holding Corporation (AKS), and Steel Dynamics, Inc. (STLD). Some of these companies are also part of the SPDR S&P Metals and Mining ETF (XME).

The automobile industry is the second-biggest consumer of steel in the US. We’ll examine this industry in the next part of this series.