What a difference a decade makes. Ten years ago, consumer confidence had slipped to an all-time low, and consumer spending followed it down the rabbit hole.
At the close of 2018, the consumer’s outlook on things is several shades brighter than it was a decade ago.
Consumer confidence hit an 18-year high point earlier this year. According to the Conference Board, the consumer confidence index jumped to a reading of 138.4 in September, up from 134.7 in August, and approaching its all-time high of 144.7 from the year 2000.
The strong showing, according to Chris Rupkey, chief economist at MUFG Union Bank in New York, is backed by unemployment figures that remain below 4 percent and the relative tightness in the labor market putting upward pressure on wages.
Consumers are both seeing their earnings increase — for the first time in years for many — and are feeling confident that their employment status is stable, Rupkey noted, telling Reuters, “The consumer is always in the driver’s seat when it comes to stoking the fires that run the engines of economic growth.”
And stoke those fires they did — with some serious spending during Q3 and Q4.
U.S. consumer spending in October increased by the most it had in seven months, according to the Department of Commerce. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.6 percent in October, reflecting some increased costs, particularly in healthcare and utility prices, as well as an uptick in purchases of goods and services. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1 percent after increasing 0.2 percent in September.
And that spending push continued into the holiday season, when U.S. total retail sales jumped 5.1 percent from Nov. 1 to Dec. 24 compared to 2017, according to Mastercard’s SpendingPulse. That would represent the sales season’s biggest growth in six years.
The season, by the numbers, was a bit uneven. Department stores saw a 1.3 percent decline, after two years of sales growth. Department store eCommerce, on the other hand, increased 10.2 percent year over year.
That fact hints at the bigger takeaway, which is that digital and multichannel sales were the big winners across the holiday shopping season. Amazon reported a record-breaking holiday season and was reportedly a major beneficiary of confident consumers’ appetite to shut down 2018 with some serious spending. Overall digital sales surged upwards 19 percent in 2018.
As for what people were buying, smart speakers were a hit — such that Amazon was sold out of several of the Alexa-enabled devices about a week before Christmas. Bose wireless headphones and Carhartt clothes were also popular, according to Bloomberg, and apparel as a category showed strength, with a 7.9 percent year-over-year gain. That represented apparel’s biggest growth since 2010, according to Mastercard’s SpendingPulse report.
Home improvement product sales were also big during the holiday quarter — up 9 percent, a growth trend that started before the holiday shopping season, and one that is largely attributed to sluggishness in new housing sales and a resulting “reinvestment” by consumers in their existing residences.
“It was a very healthy holiday season all around,” Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Inc., told PYMNTS’ Karen Webster.
While it might be nice to end on a note of optimism and assume that consumers will remain as confident — and thus as spending-enthused — in 2019, there is evidence that things may not quite be that simple.
The buoyant consumer attitude took a dip in December, as consumers began to reflect some worries about increased economic growth. The Conference Board reports the index fell to 128.1 in December, down from 136.4 in November and at its lowest point since July.
The December readings “still suggest that the economy will continue expanding at a solid pace in the short term,” said Lynn Franco, the Conference Board’s senior director of economic indicators. “While consumers are ending 2018 on a strong note, back-to-back declines in expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”
Concerns have been precipitated by sharp drops in the U.S. stock market that have been ongoing since October, with December being an especially grim month for share prices. There are also concerns about how much and how often the Federal Reserve will raise the federal funds rate in 2019 and uncertainty about the prospect of a trade war with China in the new year.
But as 2018 comes to a close, inflation remains low, employment remains high and consumers, if not as confident as they were a few months ago, are still feeling optimistic, which means at least some economists remain that way as well.
Though — perhaps like next year’s customers — they are now mixing a bit more caution into that optimism.
“We still expect consumers to spend relatively freely,” economist Gregory Daco of Oxford Economics told USA Today, “but they’re going to be a little more cautious.”