Whither the U.S. consumer? If that’s not the question on all marketers’ minds, it should be: for B2C companies, the amount of consumer dollars available is the most important driver of revenues and profits; for B2B marketers, consumer spending accounts for around 70% of the American economy, and indirectly drives business investment and purchasing.
What’s more, we’ve observed that consumers typically retain habits they form in bad times for a significant period of time after the economic situation improves. The longer this goes on, the longer consumers will remain austere.
So what’s the outlook? We don’t pretend to have a crystal ball, but I think it’s fair to say that the prognosis is mediocre at best. A number of indicators of consumer health are trending up, but others suggest some risk of problems in the mid to long term. In all, the data suggest that, at best, the consumer spending pie is growing very, very slowly, and may in fact be stagnant or shrinking.
Brands can grow in a recession or consumer spending downturn, but it’s generally zero-sum growth, coming at the expense of other brands. Making product and brand messaging as simple as possible is one way to maintain share of wallet during downturns, and we’ve also got some thoughts on resource allocation and optimization during recessions, as well as some ideas on how coupons and incentives in particular can shore up market share in bad times.
Here are three indicators that suggest consumers might be holding their own, as well as two that suggest trouble ahead:
Retail sales. Minus a slight blip last month – a blip that can largely be explained by structural issues in the auto and energy markets - retail sales have generally been getting stronger since the official end of recession in the U.S.:
Total consumer spending. Tracking retail sales, this indicator has largely been positive since the end of the recession, almost two years ago – and is nearly back on the pre-recession trend:
Be wary of this graph, however: it includes fuel and food spending, which are taking up more wallet share.
Accelerating household deleveraging. American households are generally retreating from the high levels of debt that characterized the pre-recession years:
Decreased debt service payments mean a greater percentage of household income is available for discretionary purposes.
We’ve analyzed the good – now, we’ll take a look at the bad:
Unemployment. Here’s where the real pain lies. First, there’s the “headline” unemployment rate – the rate of adults looking for work who haven’t yet found it:
That’s more or less constant – and abnormally high, given that since mid-2009 we’ve technically been out of recession. This graph doesn’t count underemployment – people who aren’t working as many hours as they’d like, or those who would like to switch jobs, but cannot – which is significantly higher.
Finally, there’s the ratio of employed people to the rest of the population:
What do these graphs tell us? They say that the unemployment is more or less remaining constant, despite the return to slow rates of post-recession economic growth; that many people are in part-time employment situations out of necessity; and that we’re not adding new jobs fast enough to keep pace with population growth.
Food and energy prices. Competing with concerning levels of unemployment for the “nastiest economic indicator award” are rising food and energy prices in America and around the world, stemming mostly from increasing demand in emerging markets. Here’s a visualization of food and energy price increases since mid-2009 (food is in blue, fuel in red):
Food and energy prices are shrinking the share of consumer wallets available for other marketers.
All in all, these data indicate that – at least at this very moment – there’s a declining pool of money available for consumer marketers, that more individual consumers are hurting due to being un-or-underemployed, and that for all those consumers, that declining pool of money is cut into even further by higher energy and food prices.
MLC members, for more on brand growth in tough times, please consider attending one of our upcoming executive retreats. This year, they focus on the theme of decision simplicity – giving overloaded consumers a break from tough-to-understand marketing messages.