Posted by: Burth Helm on March 13, 2009
Lately I’ve been baffled by this: As the economy collapses, spunky retail sales have held up. The spending measure increased 1.8% in January, adjusted for seasonal variation, and fell just 0.1% by the same measure in February. “Consumers’ Spending Appears to Be Stabilizing,” was the headline in this morning’s Wall Street Journal. To which I ask, “Really?”
I called a couple of economists to try to learn more.
Disposable income is rising, in fact, and with it, retail sales. But marketers should pay close attention to the peculiar way in which that number is going up. According to Scott Hoyt, a Consumer Economics specialist at Economy.com, disposable income is rising among the nation’s lowest earners, thanks to falling gas prices, but also due to how the Government adjusts its Social Security, food stamp, and Welfare payments for inflation every January. The Government pegs these increases to prices in September. This time around, commodity prices were much higher in the Fall. So now recipients of Social Security, food stamp, and Welfare money are getting a bump. “The quirk of the calendar helped get [Government stimulus] started a little earlier” than the planned tax breaks, says Hoyt.
Marketers should note that this means everyone still feels as poor as ever (Nobody looks at a slightly higher Welfare check and feels flush), and it’s just a stop-gap until more stimulus arrives.
Carl Steidtmann, Chief Economist at Deloitte Research, points out that going forward, marketers will have an especially tough time raising prices again. “Consumer still expects great value, and the retailers who’ve done well are still price driven,” says Steidtmann. “This will make the profit environment very challenging.” Finally, our own Michael Mandel issues a word of caution. We still don’t know whether these retail figures will be revised downward when the U.S. Census Bureau gives final numbers on April 30. “During a period where consumers are changing their spending patterns dramatically [i.e. right now], the reliability of these early numbers goes way down,” says Mandel.