Fair Weather Consumer Spending?

“Staycation,” no more. Now that we’ve braved the winter and been freed from our stir-craze, many of us are back in the spending mood and ready to leave the house. In a recent interview, PYMNTS spoke with Sarah Quinlan, SVP Market Insights at MasterCard Advisors and known on Wall Street as the “Duchess of Doom,” to understand what is driving retail spending trends. As it turns out, if you want to forecast retail sales, just look at the weather.

U.S. retail spending rebounded in April to 4.4 percent after a very dismal winter for retailers. To what to do you attribute the turnaround? Is it really all weather related?

SQ: It really is all weather related. The most interesting thing here is that we actually look at payments and spending on a regional level. When we looked at the Great Basin, the Midwest, the Northeast, and the mid-Atlantic, they were all negative year over year. However, in the West, retail spending grew at almost double-digits, and in the South and Southeast as well. You could really see that it wasn’t economically related – it really was the fact that the weather was so poor that people couldn’t get to many stores. From that perspective, what’s happened is that where people had the abilities to spend, they absolutely wanted to spend. Another important point is that, even with the muted spending that we saw in January, February, and March, we still saw that the leading category was experiential spending. This is where you see people spending on dining out, traveling, and jewelry – things that are discretionary spending as opposed to grocery shopping, or gasoline and things like that. To me, that shows economic confidence.

Additionally, while online shopping has seen double-digit year to year growth, it’s still only between 7 and 8 percent of total retail spending, so it’s clear that people are still used to actually getting out to the stores.

What are some category winners and losers in April?

SQ: A couple months ago it was airlines, and as the story goes, about 2-3 months later, lodging takes the top spot as people book places to stay based on the trips they’ve booked. This is very exciting.

Last summer, data shows that consumers left the house but we still drove places, so lodging was up but airlines were negative. This year, airlines are dramatically positive, as is lodging now in following months. We also know that when people take a “flying” vacation, they spend about double of what they spend on a “driving” vacation. So that puts a lot more money into the American economy, and the reason I say this is because only 27 percent of Americans have a passport, meaning that they’re flying within the country.

Restaurants and jewelry were also solid categories. While we’re buying less apparel, we’re accessorizing ourselves more. People see jewelry as an investment.

How does this compare to consumer spending in other markets?

SQ: Interestingly enough, we’re seeing increased discretionary spending in the UK, which we did not see last year. That does reflect positive economic statistics today. Other than that, the rest of the world is fairly muted in terms of retail spending, and that is clearly a concern. So the US is number one, and the UK is number two, and the rest are showing some positives, but on a relative basis, the overall retail spending has been declining during the last several months.

You recently returned from the annual Milken Institute Global Conference in LA, where you spoke about U.S. growth leading the global economy. What were your big takeaways from that discussion and the conference overall?

SQ: I think it was very interesting. Clearly, it reaffirmed what we’re seeing in consumer spending – that everyone is continuing to spend more this year. And if you look at companies that are manufacturing out of the United States and exporting out of the United States, which is not something we’ve done a ton of lately, we’re overall seeing a lot of positives. That was really reflective in what we learned out there. Another huge positive is that of the 14.2 million cars sold in the US, 72 percent were actually produced in the US.

The other thing that was very interesting is the slowing down of hardware and furniture sales in the United States. We saw them rise in February 2012, but now we’re seeing them drop and that was the topic of a very long debate for a number of panelists. But I think that we are seeing that people are buying more furnishings than furniture, and when you buy furnishings, you’re accessorizing, as opposed to investing in a home by purchasing furniture.

We are about to head into the travel season with Memorial Day as the unofficial start of summer in the U.S. Last year you talked a lot about the popularity of the “staycation.” Based on the trends you’re seeing, what your outlook for summer travel this year?

SQ: I think it’s going to boom. Not only do we see that airline travel in terms of the number of transactions is up, but we’re also seeing that the prices are up, and people are still willing to pay them, so in other words they have pricing power. And when you pass your pricing power, it really shows strength. I think that people will be taking “flying” vacations this summer and traveling again, and that’s a great thing, too. It’s an aspirational purchase – you’re saying, “I feel confident enough to take a vacation, I don’t know what exactly I’m going to spend, and I don’t know what I’m going to spend on meals.” To me, that’s saying something positive.

Sarah Quinlan is a Senior Vice President at MasterCard Advisors, responsible for Market Insights, which produces MasterCard SpendingPulse, a macro-economic indicator. Her team develops products that utilize MasterCard’s aggregated anonymous transaction data to delineate actionable trends.
Prior to joining MasterCard Advisors, she was the Founder and CIO of Katen Capital, a global macro hedge fund manager.
Previously, she was the Chief Investment Officer and Head of Alternatives for Saad Financial Services, S.A.  Prior to joining Saad, she was a portfolio manager at UBS, and at Lloyds TSB focusing on alternative investments. She was co-founder and portfolio manager of TwentyFirst Century Advisors, a small and mid-cap long/short hedge fund which was ranked in the Top 10 of Mar Hedge.
Ms. Quinlan began her career at Salomon Brothers Inc. in mortgage sales and trading.

Ms. Quinlan also was the co-founder and Chief Operating Officer of ClienTec, a thin client computer company which was sold in 2000.
She received her BA and MBA from the University of Chicago in Politics, Economics, Rhetoric and Law with Special Honors and in Finance and Accounting, respectively.