Ethan Allen shows consumer pulse
Never mind the sentiment surveys. The maker of custom furniture is a better barometer of consumer confidence.
By Jim Cramer, TheStreet
Do we feel more confident? Do we feel confident enough to buy something expensive rather than go to Ikea? Maybe go to Ethan Allen (ETH) instead and get our own furniture, designed by us, rather than something from the showroom?
To gauge consumer sentiment -- something incredibly important because the consumer represents about 70% of our economy -- I have always used Best Buy (BBY), Tiffany (TIF), Nordstrom (JWN) and Coach (COH). You don't go to any of those if you are feeling down in the dumps.
But after speaking to Farooq Kathwari, the long-time CEO of Ethan Allen, I am wondering if traffic and purchases from his high-end furniture company aren't a better gauge. And if I am right, then we are feeling better, doing better, and much of the credit has to go to the stock market.
In my on- and off-camera discussions with Kathwari, it became abundantly clear that things have improved as the stock market has improved. There aren't really many other variables.
Job growth? Hmmm. Wages? Stagnant. Home wealth? You read what I read, although the notion that houses keep going down in value nationwide is the work of dogmatic journalists leaning on a couple of outfits that seem to be Meredith Whitney-like in their endless negativity.
When the Dow goes up, traffic at Ethan Allen goes up.
As you can tell from Matt Fassler's excellent piece of Goldman Sachs research upgrading ETH to "hold" from "sell," the numbers are too low. That's very significant. An expensive nationwide furniture chain with numbers that are too low.
Just to refresh, the number of furniture makers and retailers that have gone belly up in the past 25 years is staggering. ETH is the exception. Nevertheless, if the numbers were going the other way, we would be worried. Instead they are advancing by about 30%.
I think the power of the stock market over peoples' minds is very strong. It is something that has kept them from being bullish about their own prospects for two years. Now the actual asset class is tarnished from the shenanigans and blowups. However, the rally in stocks is a virtuous circle, one that can affect all sorts of other decisions.
Watch ETH. It is a perfect gauge of the interaction between the asset class and spending, particularly because the price points for custom-made furniture are so high.
It tells you things aren't so bad, a better indicator than the amorphous ones that bearish commentators trot out endlessly to tell you that things are getting worse, not better.
At the time of publication, Cramer had no positions in the stocks mentioned.
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