Americans are ending 2009 feeling better about their futures but less than merry about the present.
This story first appeared in the December 30, 2009 issue of WWD. Subscribe Today.
While The Conference Board’s Consumer Confidence Index rose to 52.9 this month from 50.6 in November, its two components went in distinctly different directions. The Expectations Index rose to 75.6, above November’s 70.3 and its highest level since the 75.8 reached in December 2007, but the assessment of current conditions, known as the Present Situation Index, sank to 18.8, the lowest since its 17.5 nadir in February 1983, from 21.2 last month.
“A more optimistic outlook for business and labor market conditions was the driving force behind the increase in the Expectations Index,” said Lynn Franco, director of the group’s Consumer Research Center. “Regarding income, however, consumers remain rather pessimistic about their short-term prospects and this will likely continue to play a key role in spending decisions in early 2010.”
According to the data, consumers claiming business conditions are “bad” grew to 46.6 percent from 44.5 percent, while those claiming conditions are “good” decreased to 7 percent from 8.1 percent. Consumers’ appraisal of the job market was also mixed, as those claiming jobs are “hard to get” slid to 48.6 percent from 49.2 percent, while those asserting jobs are “plentiful” shrank to 2.9 percent from 3.1 percent.
“Let’s be real,” said Susquehanna Financial Group retail analyst Thomas Filandro. “It’s an index of emotion.”
He said the Present Situation Index is a “clear indication that the consumer seems skittish.” However, he added that if the current environment “holds, consumer confidence will rise.”
A worsening of the employment picture could prevent an increase and drive the numbers lower, but the 5,000 U.S. households covered by The Conference Board and TNS, its research partner, suggest consumers are starting to feel otherwise. Those expecting business conditions to improve rose to 21.3 percent from 19.7 percent, while those expecting conditions to deteriorate declined to 11.9 percent from 14.6 percent.
The outlook on the labor market was also more upbeat, as the percentage of consumers expecting more jobs to become available in the months ahead expanded to 16.2 percent from 15.8 percent. Those expecting fewer jobs fell to 20.7 percent from 23.1 percent. However, the percentage expecting their incomes to grow slid to 10.3 percent from 10.9 percent.
In the face of such fears, consumers continue to tighten their belts, according to a recent poll from global business advisory firm AlixPartners, which showed that Americans plan to save a “stunning 15 percent of their total income after the economy improves,” the firm said.
With consumer spending driving as much as 70 percent of gross domestic product in the U.S., a shift towards saving could threaten retail growth even if the employment picture improves.
The survey of 7,500 people, conducted in November, echoes the findings of a February poll by AlixPartners in which Americans said they planned to save 14 percent of their post-recession incomes.
The results, which the firm believes could be a “new normal” with “implications for businesses of all types,” provide “further evidence that consumer spending could remain low for some time.”
Last year, Alix said, Americans saved just 1.6 percent of their total earnings and 1.4 percent annually on average for the prior decade.
“We have always heard about the generations — Baby Boomers, Echo Boomers, Gen-X, Gen-Y — each with their own distinct way of thinking and acting,” said AlixPartners chief executive officer Fred Crawford. “This recession may have spawned the ‘Society of Savers’ — ‘Citizen S,’ as it were. This appears to be a new way of thinking and being, not a moment in time.”
Still, evidence continued to mount Tuesday that Americans loosened their purse strings a bit for the holidays. Sales data from the International Council of Shopping Centers Inc. and Goldman Sachs indicated that, for the week ended Dec. 26, retail sales rose 0.4 percent from the prior week, which ended with a poorly timed snowstorm, and a more robust 2.3 percent on a year-over-year basis.
“The pre-Christmas sales wrap-up was strong as consumers hurried to finish off their gift buying, which was hampered by the supersized storm during the prior week in the Southeast and Northeast and by a slower holiday-gift completion rate than last year,” said Michael Niemira, ICSC chief economist and director of research. “As such, consumers were out in force to finish shopping and the preliminary indications appear that sales are on track, with one more week of sales in the fiscal month, to finish up about 2 percent for the month of December.”
“Holiday indicates it’s in the DNA of the American consumer to spend,” Susquehanna’s Filandro said, explaining this season’s results, which he estimated to be flat to up in the low-single digits, are considered a “win.”
But for improvement in 2010, “we need demand,” he said. “The top line needs to reverse for stocks to work in 2010.”
Neither the consumer confidence numbers nor a report of unchanged home prices moved the equity markets on Wall Street, where trading was extremely light. The S&P Retail Index fell less than 0.1 percent to 418.48, in line with a similar decline for the Dow Jones Industrial Average, which ended the day at 10,545.41. The S&P 500 and Nasdaq Composite both fell 0.1 percent, to 1,126.19 and 2,288.40, respectively.
Among the 172 apparel, beauty, retail and related stocks tracked by WWD, five specialty retailers had gains of 4 percent or more: Pacific Sunwear of California Inc., up 11.4 percent to $3.92; Zale Corp., 11 percent to $2.53; The Finish Line Inc., 5 percent to $12.22; New York & Company Inc., 4.8 percent to $4.38, and Christopher & Banks Corp., 4 percent to $7.55.
Department stores, which traded strongly on Monday based on preliminary results through Christmas, were mixed Tuesday, with advancers and decliners equal in number. Gainers were Nordstrom Inc., up 1.6 percent to $38.39; Stage Stores Inc., 1 percent to $12.89; Saks Inc., 0.6 percent to $6.91, and Kohl’s Corp., 0.2 percent to $55.56. Those finishing below their Monday close were The Bon-Ton Stores Inc., down 2.9 percent to $10.25; J.C. Penney Co. Inc., 1.3 percent to $27.03; Dillard’s Inc., down 0.6 percent to $19.86, and Macy’s Inc., 0.6 percent to $17.65.