Consumer spending up, for a month anyway. What should marketers take away from the latest news ?
03/13/10 08:16 AM Filed in: Demographics
One
economist, David Levy of the Jerome Levy Forecasting Center, warned
this week that the United States was in a period of “contained
depression,” a transitional stage of debt reduction and asset
deflation that will last “at least several years and perhaps a
decade." The widespread pessimism reflects the fact that
unemployment remains high and that stock prices have not regained
all they lost after peaking in late 2007. A year ago, when the
stock market hit its lows, there was talk of a new depression.
Consumer purchases, which account for 70% of U.S. economic activity, are crucial to an economy still emerging from a deep recession. But while consumers are growing more willing to spend, economists expect the pressure of stagnant wages and mounds of debt to hold back the momentum in sales growth. At the end of 2009, total household debt in the U.S. was 122.5% of annual disposable income, down from a peak 130.6% in 2008. For most of the 1990s, the ratio was under 90%. That indebtedness has prompted some consumers to save more of their income to pay down debt, while forcing many others to default on loans. Be it increased savings or tighter credit, the result is that many consumers are unable to keep spending at past levels.
It is a glimmer of hope that consumers want to spend. There are two issues that are holding them back; first, the media is quick to paint of picture of gloom and doom which scares consumers and second, consumers are still concerned that their nest eggs, in the form of their homes, are not worth what they thought they might be worth and that coupled with job insecurity will hold back a full force recovery.
Yesterday Apple reportedly sold over 50,000 of their new iPads to US consumers but most people who are purchasing this product are doing so because they believe it can help them be more productive in a wired 24/7 world. While 50,000 units at $500 a shot is a great start it still remains to be seen if this item is a "mass market" item. Remember the lines for the iPhones when they came out? As big as sales were for the iPhone its market share still lags behind RIM (Blackberry).
Retailers are going to keep inventory levels lower throughout the year which will put more focus on manufacturers to deliver goods when retailers ring their phones to place orders. Consumers? They are going to indulge a little bit more because although they are scared they also want to escape the pressures of daily life and going out to eat or buying a new flat screen TV is a great way to "treat" yourself.
I'm watching two things right now: the consumer confidence levels and consumer debt (minus cars). With interest rates on credit cards at an all time high for a lot of consumers I expect that consumers are still going to be wary of taking out the plastic and asking themselves "do I really need this?"
Consumer purchases, which account for 70% of U.S. economic activity, are crucial to an economy still emerging from a deep recession. But while consumers are growing more willing to spend, economists expect the pressure of stagnant wages and mounds of debt to hold back the momentum in sales growth. At the end of 2009, total household debt in the U.S. was 122.5% of annual disposable income, down from a peak 130.6% in 2008. For most of the 1990s, the ratio was under 90%. That indebtedness has prompted some consumers to save more of their income to pay down debt, while forcing many others to default on loans. Be it increased savings or tighter credit, the result is that many consumers are unable to keep spending at past levels.
But with heavy consumer debt loads and a 9.7%
unemployment rate,
some economists say February's big gains could
disappear as quickly as February
snows. "If you look at
the weak income growth we're seeing and the
balance sheet issues, I don't see where the fuel
is to sustain this level of spending," says
Joshua Shapiro, an economist with research firm
MFR Inc.
What should marketers take away from all this?
It is a glimmer of hope that consumers want to spend. There are two issues that are holding them back; first, the media is quick to paint of picture of gloom and doom which scares consumers and second, consumers are still concerned that their nest eggs, in the form of their homes, are not worth what they thought they might be worth and that coupled with job insecurity will hold back a full force recovery.
Yesterday Apple reportedly sold over 50,000 of their new iPads to US consumers but most people who are purchasing this product are doing so because they believe it can help them be more productive in a wired 24/7 world. While 50,000 units at $500 a shot is a great start it still remains to be seen if this item is a "mass market" item. Remember the lines for the iPhones when they came out? As big as sales were for the iPhone its market share still lags behind RIM (Blackberry).
Retailers are going to keep inventory levels lower throughout the year which will put more focus on manufacturers to deliver goods when retailers ring their phones to place orders. Consumers? They are going to indulge a little bit more because although they are scared they also want to escape the pressures of daily life and going out to eat or buying a new flat screen TV is a great way to "treat" yourself.
I'm watching two things right now: the consumer confidence levels and consumer debt (minus cars). With interest rates on credit cards at an all time high for a lot of consumers I expect that consumers are still going to be wary of taking out the plastic and asking themselves "do I really need this?"
