Consumer Confidence
The American economy is built on consumption growth and materialism is the core of the economy and the American soul. It is estimated that in the U.S., corporations’ marketing spending is around $481 billion annually. The most growing segment is digital marketing not surprisingly. Marketing is driving sales so people will buy more and if they can’t afford to spend, there are many credit cards options. The total credit card debt in the U.S. is just north of $1 trillion, an all time high. It is supposedly good to have a few credit cards in order to build a solid credit score. A high credit score will enable you to borrow more so you can buy more. Besides, without a decent credit score, it is virtually impossible to buy a house, get certain jobs or take out a loan. Truly a sad system.
Economists and market analysts are suddenly raising flags that serious problems are around the corner. Consumer confidence fell 5.7 points in September to come in at 103.0 for the month, which is a bit lower than the decline the consensus had expected. Over the past two years, consumer confidence has been in a range between 95.3 and 115.2 with an average of 106.3. While the recent data is only a little below average for that time span, it also reflects the second consecutive monthly decline, the lowest overall reading since May and the biggest monthly drop since December 2020. The expectations component fell almost 10 points to land at 73.7 in September from 83.3 in August.
One could argue that declining consumer confidence and sales would be positive as people really don’t need most of the items they buy. Maybe people are saving more or putting money away for retirements? Most likely not. Over the past few years, soft confidence readings have not always translated into weaker spending largely because despite how they may have felt, American consumers temporarily had excess savings due to much lower expenses during Covid and the ability to boost purchasing power with credit cards.
As the Covid savings are running dry, and this is happening rapidly, and credit is both harder to find and more expensive due to high interest rates, softer confidence will likely have a more meaningful negative impact on spending. The looming threat of a government shutdown, while uncomfortably familiar at this point, is also weighing on people at a time when interest rates are beginning to bite in earnest.
Another factor impacting consumption and sentiment is energy prices. The price of a gallon of unleaded gasoline is up about 32 cents since the July 4th weekend, and for someone filling up a 15-gallon tank, that’s an extra $4.80. Gas is not the only place where prices are rising; at a time when core CPI inflation is already north of 4%, the extra money needed for gas adds up. Household essentials are increasingly constraining consumers’ balance sheets. There was little surprise then to see plans to make major purchases declining across the board in September. Fewer consumers are reporting plans to purchase an auto, home or major appliance within the next six months. People have pretty much run out of money and maxed out on their credit cards.
Further, consumers are growing more worried about the labor market. Those reporting jobs as hard to get rose slightly to 13.6% in September from 13.2% in August. This measure has not been above 13% for two consecutive months since late 2022. Still high prices, along with a labor market that is showing signs of tightening, are leaving consumers feeling less confident in their outlook. Maybe consumers should try to slash spending and focus on building healthy economic budgets, try to live within their means, pay off the credit cards and focus on a smarter and healthier lifestyle.
Use the marketing billions to promote healthier choices or education and anything positive. Can this actually happen? Most likely not as the American economic system is truly built on endless and growing consumption. Expect higher credit cards debts, more loans, more economic headaches, higher corporate marketing costs and a challenging 2024 for the American consumer.