The confident consumer is a sector of the shopping industry that most merchants are likely hoping to increase spending and attitudes about the market. In today’s topsy-turvy arena, while retail undergoes its digital transformation, whether or not the confident consumer thrives is lingering on retailers’ ability to stay engaged with their target base.
Consumer confidence and the resulting retail sales, although intrinsically interconnected, don’t always reflect the same outlook. Earlier this year, it was reported that sentiment for consumers was a 17-year high, but it may not necessarily affect merchants’ bottom lines as much as they hope. The University of Michigan’s Surveys of Consumers showed a 7.3 percent increase, up to a total of 124.9 in confidence from the previous year. As it turns out, those warm consumer feelings started to curb, with a slight decline down to 121.1.
June retail sales saw a 0.2 percent decline, but reports from the U.S. Commerce Department show that July saw a 0.6 percent increase, which is 0.2 percent higher than Reuters polled economists predicted. On the surface, these numbers seem to indicate a strong economy, but according to CNBC, consumers are pulling from their savings accounts to help fund their current retail spending. As a direct result, U.S. consumers’ savings rate dropped from 6.2 percent in Q2 of 2015 to 3.8 percent in Q2 of this year.
JPMorgan economist Michael Feroli commented to Reuters on the unnerving nature of this significant decline in savings accounts and what it may mean for the future of economic survival. “The decline in the saving rate, however, raises some longer-term concerns about consumer spending,” Feroli said. “Savings can’t drop indefinitely, and future consumption growth will need to rely on stronger income growth.”
So far, in the month of August there has been a positive increase in consumer outlook. Nearly 50 percent of respondents from the University of Michigan’s latest research say their finances have improved. This bodes well for retailers looking to continue with forward momentum for upcoming Q4 sales. The director of University of Michigan’s survey, Richard Curtin, commented to Bloomberg about these new results and what it may mean for the consumer outlook.
“The precautionary mood of consumers had required price discounts and low interest rates to offset their economic uncertainties, now consumers are more likely to base their spending decisions on a renewed confidence in their jobs and incomes. To be sure, attractive prices and interest rates are still required, but the basic motivation has begun to shift toward a more confident buyer.”
Given the slight decline in retail sales at the beginning of the summer and the sudden uptick in August, it seems as though the confident consumer will likely remain hopeful for the remainder of the year. The combination of the retail industry’s digital transition and President Trump’s recent comments on eCommerce retailer Amazon, the balance between various retail buying silos for consumer buying patterns may also remain the same. Being that Amazon is one of the retailers that has seen a significant impact on others and some may argue is helping shape the retail of the future, what the President says about the online retailer may impact the entire industry.
In consumer news this week, Amazon shares are seeing a decline at the same time as the retail-tracking exchange-traded fund, S&P Retail ETF (XRT). While the XRT has fallen for the last three weeks, Amazon’s stock has fallen for four consecutive weeks. Miller Tabak’s equity strategist Matt Maley commented on the potential concerns this brings to the retail industry.
“The reason this could be an issue is because the XRT had been going down for quite some time, showing the retail stocks weren’t doing well, but everybody was saying that’s OK, the consumer is still doing well, because they’re buying all their stuff through Amazon.”
In Illinois, it is now legally protected for consumers to sue review websites like Yelp and Trip Advisor following a negative posting. Gov. Bruce Rauner signed a bill into law that prevents businesses from going after or persuading consumers to not post critical reviews by threatening fees. This new law is an amendment to the state’s Consumer Fraud and Deceptive Business Practices Act.