Across the board, consumers plan to spend less, even on essentials such as groceries, and defer major purchases despite overall improvement in consumer confidence in the economy and job security, according to Kurt Salmon’s recent analysis of a BIGResearch study of more than 8,000 consumer opinions.
Contrary to what might have been expected, we found that consumer confidence in the economy began to erode well before the banking and economic crisis of fall 2008.
Instead, confidence began a relatively steady decline in February 2007, reaching its low at 19% in June of 2008. As of May 2009, confidence has risen a remarkable 12 percentage points since February 2009, up to 31%, but has yet to reach its previous levels in 2006 and 2007.
Consumers’ expectation of future layoffs presents a comparable picture. Expectation of more layoffs began to rise around January of 2007 and peaked at 59% in December 2008, the height of the banking and economic crisis.
Like confidence in the economy, expectations of job stability have improved since February 2009, even though 27% of consumers still anticipate more layoffs in the future.
But how have consumer confidence in the economy and the expectation of layoffs affected purchasing behavior? Consumers are deferring purchases across all categories, including, dining out, apparel, home improvement, and auto, with a noticeable increase in deferral since May 2006.
Although there has been an improvement in most categories since February 2009, consumers are still holding back on purchases.
Consumers have also become more sensitive to discounting. In May 2009, 25% stated that they will buy clothing only when it’s on sale, up from a low of 16% in 2006.
Major purchases are also suffering, with fewer than 10% of consumers planning major purchases in any category except vacation. However, this trend downward began several years ago, and the current recession does not appear to have had a dramatic impact.
In early 2008, there was a clear increase in consumers who were planning to spend less. This applies to every category across the board. The least-affected categories—groceries, health and beauty, children’s clothing, lawn and garden—are either essentials or are related to “nesting.”
Although there has been an upswing in consumer attitudes about the economy and jobs starting February 2009, there is little evidence that consumer spending will experience a similar increase. The current poor levels of spending do not appear to be driven solely by last Fall’s banking and economic crisis, and have been visible since 2007.
30 June 2009