Improving consumer confidence and the accelerating release of pent-up demand among middle-income consumers has led Moody’s Investors Service to upwardly revise its forecast for US consumer durables companies’ operating profit growth, the rating agency says in a new report. Moody’s now expects aggregate operating profits to increase 5.5% to 6.5%, and revenues to grow by 5% to 5.5%, over the next 12 to 18 months.
The Conference Board’s US consumer confidence index rose to 101.3 in March from 98.8 in February, putting it above 100 for the second time in the past three months and among its highest levels since 2007.
“When times get tough, consumers hold off on purchasing appliances, furniture, carpets and other durable goods, making what they have last longer,” says Vice President — Senior Credit Officer, Kevin Cassidy. “But over the next year or so we expect pent-up demand to release more quickly due to improving consumer confidence, relatively low household debt and falling unemployment.”
Middle- and lower-income consumers remain cautious for the moment due to high food and healthcare costs, as well as economic uncertainty, Cassidy says in “Improving Consumer Confidence and Release of Pent-up Demand Drive Profit Growth.” Modest spending by these consumers is negative for companies that sell low-end discretionary products such as Acco Brands Corp., Fender Musical Instruments and Gibson Guitar Corp.
Conversely, companies that sell high-end discretionary products such as Steinway Musical Instruments and boat-maker Brunswick and, to some extent, Whirlpool Corp. continue to benefit from spending by affluent customers on the back of gains in the equity and housing markets.
Indeed, an improving, if still choppy, US housing market will support revenue growth of between 5% and 7% and operating profit growth of 7% to 8% in the home products subsector over the next year or two, to the benefit of companies including Whirlpool Corp., Mohawk Industries Inc. and Serta/Simmons Holding LLC. The home products subsector accounts for about half of the US consumer durables industry’s revenue and operating profit.
The material has been provided by InstaForex Company – www.instaforex.com