Consumer Confidence, reported this morning at 10:00, came in above expectations at 55.9 (estimates were for 53.5). This is the highest level since September-08, but as shown below the indicator still has a long way to run which is potential continued fuel for an equity rally.

click to enlarge

For better or worse, the United States economy is tied to retail. Consumption easily accounts for more than two thirds of the nation’s GDP, and end of year holiday shopping season is always closely watched and analyzed. Retail spending last year was extremely weak in the aftermath of the global credit crisis and unprecedented government action attempting to stabilize a sputtering financial system. Much of the panic of last year has passed but challenges remain, as nearly 3 million more people are unemployed than at this point last year.

For all intents and purposes, the most crucial season for retailers is nearly half way over. It begins each year on the Friday following Thanksgiving, often referred to as Black Friday. The weekend that encompasses Black Friday is immensely important to retailers, and it often sets the tone for the rest of the season. This year’s Black Friday results were mixed, as more shoppers were out in stores (also includes the web) this year than last, but they also spent less money on average. We would consider that weekend to be moderately successful for retailers, especially with the continued growth of e-commerce sites (Cyber Monday: The New Black Friday).

A critical five-week stretch for retailers has gotten off to a slow start, and news that November sales results missed analyst expectations have added further weight to an already sagging sector. Retail sales reports from the Black Friday weekend have done little to inspire confidence, and now many retailers are reporting that they came up short on analysts “muted expectations” for last month.

The retail industry reported a 0.5% increase in November, far better than last year’s 7.8% drop but well below the 2.1% growth projected by analysts polled by Thomson Reuters. Abercrombie & Fitch (ANF) and Children’s Place Retail Stores (PLCE) reported November slides of 17% and 13%, coming in far below analyst expectations and sending shares tumbling in recent sessions.