The economic news over the past few days has been discouraging. The housing market may be bottoming out, but there isn’t any firm foundation for calling a rebound. Job losses continue to mount, and consumer consumption is still hibernating. From where we stand, the recovery looks long and hard, and the market responded accordingly, with a sharp drop on Wednesday.
Moments like this are when it’s useful to step back and think about what will drive a recovery. The way consumers feel and the way consumers act will give us the roadmap to how our country will come out of this economic slowdown. That’s where looking at the trends in consumer attitudes toward the future and in consumer confidence can provide context to the reports that tell us what has just happened.
Taking that perspective, we see that the American consumer is wary and cautious. They are watching their wallet carefully. Yet, they are increasingly confident that the economy will begin to rebound. They are planning to shop. And they are going to shop differently.
How do we know?
Emerging confidence & comfort in current circumstances
A useful first stop is Gallup’s Economic Indexes. The consumer mood is improving, they are spending a little bit more money, and they are increasingly comfortable with their standard of living. They are still worried, but the intensity of that concern is leveling off.
They are adapting. And in their adaptation, there is the likelihood of permanent change.
In reference to the monitor of daily consumer spending, Gallup notes:
Adjusting for seasonal effects by using year-ago comparables suggests that even as the consumer mood surges, consumer spending appears to be stabilizing at levels that are far lower than those of a year ago. Consumer spending last week was down 45% from the same week a year ago (when the average was $114). That is slightly better than the 53% year-to-year decline from the previous week but about the same as the 43% such decline of the week before that. (Gallup’s spending data are based on Americans’ self-reports of the total amount of money they spent the prior day on purchases other than a home, a motor vehicle, or their normal monthly bills.)
I’m particularly interested in the shift in attitude about standard of living. 75% of the respondents are satisfied with their standard of living, and more consumers feel like it is getting better than it is getting worse. This speaks to a realignment of expectations that has been referenced in a number of other settings.
That is a foundation for the new normal of the new economy.
How consumers intend to shop
Big Research looks closely at the retail marketplace and canvasses consumers to identify their future shopping intentions. In its May research report, Big Research shows how consumers are combining an increased level of confidence with a new level of expectations in order to change their future shopping habits.
First, Big Research shows the same improvement in consumer confidence.
That confidence is projected to reflect an improvement in consumer purchasing in May. Big Research’s 90-day outlook shows an increase in shopping intention among consumers in almost every category.
While the purse strings are going to loosen, don’t look for a shift from price sensitivity. For instance, Big Research observes about the clothing category that:
This month, consumers are more confident in the economy and are citing less practicality, however they aren’t more willing to shop off the full-price clothing racks…one in four consumers (25.3%) contend they only buy clothing on sale, rising from the one in five (21.4%) who felt the same a year ago. The majority (62.6%) say they usually purchase apparel at a discount, while just one in ten (12.0%) contends that clothing sales aren’t a factor.
The trends over the past several months shows the emergence of a new consumer, different from the one that went into this great economic disruption. This consumer is careful, shopping on price, comfortable with less premium purchasing, and reasonably pleased with what life has to offer.
So, when we look around as we walk through malls, or visit stores, and see a lot of our peers engaged in the same activity, we should realize that they are probably making close to the same number of transactions as they did a year ago. They just are spending less money, buying different things, and accumulating different experiences.