Does increased consumer confidence translate to retail profits?
The Consumer Confidence Index (CCI) rose from 101.8 to 104.1 in September, however economists are skeptical as to whether this increase predicts actual market recuperation. After all, a contrasting study by Bloomberg shows American’s sentiment on their personal financial state dropped to 103.2 in October, the lowest it’s been since 2015. In other words, some consumers’ current fiscal state may be worrisome, but they are confident conditions will improve. As Capital Economics’ Chief U.S. Economist Paul Ashworth told The Wall Street Journal, “Confidence hasn’t been a great guide to actual consumer spending in recent years.”
Despite the uncertainties, consumers are forecast to spend for the 2017 holiday season as if the recession never happened. The National Retail Federation predicts a 3.6 percent increase in holiday spending, with online sales expected to grow between seven to 10 percent. Retailers have heard these numbers and are pouring resources into training seasonal help with expected hires estimated between 640,000 and 690,000.
Mr. Ashworth also told the Journal that consumers must be “delirious” to report higher levels of confidence in the midst of market uncertainty. Confident shoppers make more purchases, but with what revenue? The unemployment rate, while low, is at a standstill.
Credit card companies and lenders may also celebrate this season’s optimistic retail forecast. Confident consumers are more inclined to open credit accounts, which they cannot pay off until job prospects improve. In the meantime, lenders reap the interest. Perhaps this is why the Journal reports credit card debt is expected to hit $1 trillion in 2016.
Are consumers confident enough to spend money they don’t have in light of political and economic uncertainty? It is unsure whether increased consumer confidence will fiscally benefit retail stores. The numbers change monthly and best indicate consumer spending when analyzed over time. Investopedia recommends a balanced approach to interpreting CCI numbers: “The trend over several months — not the comparison of this month over the same month last year — is the undeniable benchmark.”
Last month’s promising CCI numbers are already dropping. Will optimistic retailers find themselves over-staffed and over-merchandised for the holidays?
- Markets Shouldn’t Be Too Confident in Those Consumer Confidence Numbers – The Wall Street Journal
- Consumer Sentiment in US Matches Lowest Reading Since 2014 – The Wall Street Journal
- The Conference Board Consumer Confidence Survey Increased in September – The Conference Board
- Holiday Sales Expected to Increase 3.6 Percent – National Retail Federation
- Consumer Confidence: A Killer Statistic – Investopedia
DISCUSSION QUESTIONS: Do you think a higher Consumer Confidence Index foreshadows improved holiday profits for retailers? Have retailers factored this and other elements, such as the results of the U.S. presidential election, into their staffing, marketing and merchandising plans for the holidays?