Shares of toy manufacturer Mattel Inc. (NYSE: MAT) have rallied up 28% in 2016, as the company recovers from the loss of the lucrative Disney Princess license to Hasbro Inc. (NYSE: HAS). Sales of its top franchise property, Barbie, have shown a remarkable rebound in the first half of the year. The following four economic leading indicators could have an impact on Mattel shares within the next six months.
Consumer Confidence Index
While collectors and kids may argue differently, toys are a consumer discretionary item that generally falls under the category of entertainment. When consumers are feeling optimistic about the economy, they tend to splurge more on entertainment items. The consumer confidence index (CCI) is a monthly survey of over 5,000 United States households that measures their attitudes and perceptions about the economy.
The CCI comprises three component figures in its release. The index of consumer sentiment measures how respondents currently feel about their spending power, financial health and overall financial confidence. The current economic condition measures how respondents feel about the overall United States economy. The index of consumer expectations measures how respondents see their situation in the next six months moving forward.
The data is interpreted to try to accurately forecast consumer spending levels, which makes up 70% of the country's economy. A rise in consumer confidence can positively affect retail sales and discretionary purchases. A drop in consumer confidence results in a subsequent fall in discretionary purchases, while consumer staples purchases may rise. In bleak economies, households will opt to purchase toilet paper and toothpaste over Barbie dolls.
Consumer Credit Report
The consumer credit report is released monthly by the Federal Reserve to track the credit quality of consumers by measuring the fluctuations in outstanding loans to consumers. These individual loans are considered to be used for purchasing consumer goods. The report monitors the average interest rate on consumer debt including auto loans, credit cards and bank loans. It is considered a strong indicator of future spending levels that correlates with the monthly retail sales and personal consumption reports.
The data is collected from banks, retailers, finance companies and credit unions depicting the prior quarter's balances and any revisions. Notably, the release also measures credit card delinquencies that can signal a red flag when the levels spike, indicating that consumer debt levels are overextended. This can lead to recessionary fears and a contraction in spending levels. This could mean fewer toy sales as credit limits are reached.
Retail Sales Report
As the name states, this monthly report released by the Census Bureau and United States Department of Commerce tracks the changes in the amount of retail merchandise sold to consumers in the prior month. The survey includes data from big box super stores to local mom-and-pop businesses. It is considered a preinflationary indicator. Rising retail sales result from increased consumer spending. Toy sales are part of the retail sector and tend to correlate with retail sales.
Mattel has key licenses with DC Superheroes including the Superman and Batman line of action figures. With the much-anticipated release of two major films in 2017, Wonder Woman and Justice League, Mattel is poised to benefit from sales of the exclusively licensed products including collectible action figures and toys.
Consumer Price Index
The consumer price index (CPI) is a benchmark inflation measuring tool for the United States economy. This monthly report is released by the Bureau of Labor Statistics (BLS). The CPI is widely used to determine the rise or fall in the cost of living expenses that affect consumers. The core CPI is the most significant seasonally adjusted metric as it cuts out food and energy prices. The results are characterized as the annual run rate of growth. A rapid spike in the run rate can spark inflation fears, which can abruptly drop consumer spending levels.