Consumer Finance

Does Consumer Confidence Match Their Spending?

An important predictor that helps retailers project just how much consumers are willing to spend is tracking how confident they are in the state of the economy.

Or not, as the case may be.

To better understand how consumer spending habits match consumer confidence levels, we’ve taken a look at a couple of studies that may help close that gap.

One of the most widely cited measures of consumer confidence trends is the Survey of Consumers Sentiment Index, carried out by the University of Michigan. The survey, which tracks the perspectives of 500 people, randomly selected from across the U.S., gauges consumer confidence about personal finances, business conditions and future buying plans.

The good news is that according to the most recent report released late last week, 2015 is off to an increasingly good start.

“Consumers voiced in the first half of 2015the largest and most sustained increase in economic optimism since 2004. Just as important, that same record was set by households in the top third of the income distribution as well as by the middle third and those in the bottom third of the income distribution,” Surveys of Consumers Chief Economist Richard Curtin wrote in the report.

“Moreover, the recent surveys recorded those same records when consumers were asked to evaluate prospects for the national economy, their personal finances, and buying conditions. Consumer spending will remain the driving force of economic growth in 2015. Overall, the data indicate growth in consumer spending of 3.0 percent in 2015,” he continued.

Just looking at current figures for June 2015 compared to a month prior, it shows the trajectory of consumer sentiment is on the rise, particularly compared with the year prior. June’s index of 96.1 was up 6 percent from the month prior and nearly 14 percent higher than a year ago.

Six-Month Consumer Spending Portrait: January-June 2015

While the Survey of Consumer Sentiment report shows that confidence levels hit decade-high figures, the unseasonably late winter, harsh winter storms across the East Cost, and fluctuating gas prices didn’t exactly ring the cash registers of merchants.

The June 2015  Survey of Consumers Sentiment reports: “The economic slowdown has ended according to consumers. The fewest consumers thought the economy had worsened in the June 2015 survey than at any time since August of 2000. Consumers reported hearing of fewer recent job losses in June, and the majority of consumers anticipated good times in the economy as a whole during the year ahead. When averaged over the first half of 2015, consumers were more likely to expect good times in the economy than in the first half of any other year since 2000.”

That may be true, but how did 2015 start?

Slow and cold.


Consumer Sentiment

 Interestingly enough, consumer sentiment kicked off strong in 2015, with January’s figures hitting an 11-year high on the Consumer Sentiment Index. In fact, the Sentiment Index (98.1) were higher than June’s figures. But as consumer sentiment was on the rise, that didn’t translate into higher consumer spending, which is not surprising since most consumers tend to buckle down on spending postholiday.

Consumer Spending

Per the usual trend, consumer spending took a dip after the holidays. Results from a Gallup poll show that consumers’ daily spending hit $81 on average. On average, consumer spending tends to dip $15 daily each January. The report indicated that the $81 mark was one of the highest dips during that period since 2008.


Consumer Sentiment

February didn’t just bring record-low freezing temperatures across the nation, it also brought a chilling effect to consumer confidence due to rising gas costs and harsh weather — ending the 11-year high since 2004. February’s figures were the first decrease in seven months (95.4 on the index).

“Consumers intend to increase their spending during the year ahead, but they also want to keep a tight rein on their debt as well as to increase their precautionary savings. Few consumers believe that gas prices will not increase in the future, and even fewer think the economy will no longer suffer downturns. Without more robust wage increases, consumers will increasingly condition their spending on the availability of reduced prices,” Curtin said in late February when the results were released.

Consumer Spending

The chilling confidence seemed to translate to consumer spending. The Gallup poll’s figures about spending trends between January and February show there wasn’t much of a change in consumer spending.


Consumer Sentiment

As predicted, rising gas prices and the spiral of bad weather brought down the consumer confidence level to a 93 in March. Consumer optimism hit a 10-year peak in the first quarter of 2015, but that took a dip between February and March’s figures. 

“The appeal of attractive pricing as a spending driving force has begun to fade, and has been increasingly replaced by more attractive credit conditions. The greater sensitivity of consumers to credit conditions will increase the power of the Fed’s actions, so that they can accomplish more with a smaller change than was true in the past,” Curtin said in late March.

Consumer Spending

Consumer sentiment was down slightly in March, but consumer spending levels started to rise. The Gallup poll figures for that month show that consumers were spending, on average, $7 more a day than in February, which brought daily self-reports of spending averages up to $86.

“Despite dips in the Economic Confidence Index over the last few weeks of March, Americans’ discretionary spending rose slightly over February levels. Average gas prices, which dropped rapidly last fall, were higher in March than earlier in the year, and this may have contributed to increased spending,” stated the Gallup Poll report.


Consumer Sentiment

The April consumer sentiment shows that as the weather warmed up, so did consumer confidence. The consumer sentiment index for April from the Survey of Consumers’ figures showed it hit 95.9, which was higher than both March and May.

Consumer Spending

 Just as the sentiment index figures inched up in April, so did the consumer levels, according to the Gallup poll figures. On average, consumers’ daily self reports showed they were spending $91, which was higher than the months prior. And according to the poll’s report, the April consumer spending increase is the largest month-to-month increase since November 2014.

“Furthermore, spending has historically increased in the spring, particularly in May. The increase this April is a departure from the past few years, when April spending was similar to March spending. Still, from a broader perspective, the trend over the past two years is mixed,” according to the Gallup Poll report.”


Consumer Sentiment

The figures for May showed a more drastic dip than expected. April figures showed an index sentiment of 95.9, but May’s figures came in below that by more than 5 percentage points at 90.7. Overall, in terms of consumer confidence reports, May’s figures showed that consumer sentiment took a dip, but it was poised to grow in the next month.

Consumer Spending

May consumer spending figures clocked in the same as April, and the average daily spending remained unchanged. But, consumer spending has been stable and that shows consumers have at least kept their confidence in spending levels up for much of the second quarter of the year. What was interesting from May’s figures released by the Gallup poll was how May 2015’s numbers compare to May 2008, just before the financial crisis hit. Consumers were spending, on a daily average, $114. That figure, of course (as shown in the chart above), steeply declined and didn’t start bouncing back to closer levels until 2014.


Consumer Sentiment

The consumer sentiment figures for June show there’s been a steady increase from both May 2015, and the year prior. The current economic conditions are favorable for consumer sentiment, and bode well for how well consumer spending figures could pan out for the month — marking off a strong halfway mark for 2015.

Curtin cited the improving economy as the highest contributor to the overall boost in consumer sentiment. But the trends of how consumer behavior matches that sentiment will be key to understanding the overall U.S. economic outlook.

“But the gains were so outsized that they probably reflected the acceptance of a new lower comparison standard that was based on diminished expectations for long-term economic prospects,” Curtin wrote in the June 2015 report. “Parsing just how much has been due to an improving economy and how much to an acceptance of diminished economic standards will be revealed by their subsequent consumption behavior. Needless to say, the answer to this question has critical implications for appropriate economic policies.”

Consumer Spending

It’s too early for reports for consumer spending in June to be fully know, as economists are likely crunching those numbers today on the last day of June, but the consumer sentiment figures indicate hope for consumer spending trends.

Consumer Confidence: A Snapshot Overtime

To gain a better context of how consumer confidence has led to consumer spending trends over time, this chart to the left shows how consumer confidence has trended over time, particularly comparing the ’90s to the 2000s pre-recession and the ’10s and beyond, post-recession.

What’s most notable is how the ’90s consumer confidence figures have an upward trend throughout the entire decade, but the volatility of the new millennium — with a major economic recession sandwiched in the middle of the past 15 years — has shaken consumer confidence to new levels.

But, as always, consumer confidence rebounds, and based on the latest projections, so will consumer spending habits. 


Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the November 2019 Mobile Order-Ahead Report, PYMNTS talks with Dan Wheeler, Wahlburgers’ SVP, on how the QSR balances security and seamlessness to secure its recently launched WahlClub loyalty program.

1 Comment