Despite robust consumer confidence, analysts, retail consultants and industry observers remain wary of a Trump presidency as it relates to consumer spending.
Fogging up the outlook are too many uncertainties in regard to specific policies and initiatives planned by president-elect Trump as well as the Republican-controlled Congress. What’s in motion already — such as the dismantling of the so-called Obamacare program by GOP leaders — isn’t helping to brighten the spending picture.
And while Trump’s recent meetings with business leaders — including Alibaba’s Jack Ma — have sparked hope in the small business and entrepreneur community, some manufacturers are worried that protectionist policies will have a negative impact on business.
Yesterday, the Thomson Reuters Ipsos USA Consumer Sentiment Index came in flat for December, but showed a 3.8 percent year-over-year gain. In December, the index (along with the Conference Board’s Consumer Confidence Index) rallied. December and January’s readings were the highest since before the Great Recession.
“Coming out of the holidays and looking forward [this year], American consumer confidence is generally pretty positive,” said Ipsos researcher Chris Jackson. “However, much of the current positive sentiment is powered by hopeful expectations. The expectations index has traditionally been one of our most volatile, so we could still see rapid swings in confidence based on what the new administration does with the economy.”
Shelley E. Kohan, vice president of retail consulting at RetailNext Inc., said from a retail perspective, “the Trump administration may potentially have a substantial impact on the industry in terms of trade agreements and corporate tax reform.”
“However, we will not truly understand the depth of this impact until we begin to see real policy changes that support the president-elect’s view of these issues,” she said. “Most likely, President-elect Trump’s first actions will impact fiscal policy, including both corporate tax reform and government spending.” Kohan said if the president-elect’s campaign promises of job creation come to fruition (along with investing in infrastructure), “these could both be favorable catalysts for the retail trade industry.”
“Simply, more jobs equate to more money in the economy for discretionary spending,” Kohan said. “However, on the contrary, if Obamacare is repealed and potentially leaves millions of Americans without health-care coverage, it will curtail discretionary spending as those who lose coverage will most likely limit spending until the health-care coverage issue is resolved, even on a short-term basis. Additionally, undocumented immigrants are most likely to pull back most all spending, waiting to see if their status in the United States will be effected.”
As a result, Kohan and others expect consumer sentiment to be volatile through at least the first quarter. But at the moment, Kohan said there are “simply too many variables — for consumers and retail professionals alike.” Brian Curran, retail analyst at Nasdaq Corporate Solutions, agreed that a lack of specifics makes it hard to forecast. But there are cues to look for that will impact the retail market, he said.
“Some of the main policies to watch for are tax cuts for individuals and corporations,” Curran noted. “A personal tax cut that benefits the masses in the middle class would translate into higher consumer spending with more income in the pockets of Americans. However, personal tax cuts have to be watched carefully as some of the details, such as dependent exemptions, may be cut out and offset the benefit.”
The analyst added that a corporate, across-the-board tax cut would help businesses across all industries, which could, in turn, be passed down to the consumer via lower-priced services and goods. Curran also pointed out that infrastructure investments would mean more jobs, which could boost spending.
“Conversely, a potential import tax and changes to international trade could have an impact on consumer spending,” he added. “With most retailers importing foreign goods/materials for U.S. consumption, an import tax or tariff could cripple gross margins while possible trade disruptions could leave retailers without enough inventory on hand, driving prices higher. For the markets, potential foreign trade policies may favor other domestically-oriented industries, such as energy, over consumer discretionary and staples.”
Meanwhile, some see the high levels of consumer confidence as not fully measuring the true intentions of consumers. Last month, marketing platform Fluent surveyed more than 2,000 U.S. adults for its Consumer Outlook Report, and found that 60 percent of respondents said “they did not think the country was heading in the right direction.”
“They were evenly split in believing that their personal financial situations would improve in 2017 versus staying the same or declining,” said Jordan Cohen, chief marketing officer at Fluent. “And 50 percent said they spend their money ‘very carefully’ with another 11 percent saying they spend their money at least ‘somewhat carefully’ (compared to only 13 percent who said they spend money very freely).”
As a result, Cohen said he’s doubtful of higher consumer spending. “We need to see a majority of people saying that they believe the country is heading in the right direction, and that they are personally going to make more money this year for increased spending to happen,” he added.
Benjamin Glaser, consumer analyst and features editor with DealNews, which is a shopping comparison website, noted that although consumer confidence rose it wasn’t uniform. “One detail often overlooked in these numbers is that all of this growth is concentrated in older Americans: Consumer confidence actually fell among Americans under 35 after the election,” he said.
“Unfortunately for retailers, that is demographic is the largest in the country, and has a lot of disposable income for retail,” Glaser explained. “Millennials and those younger generally spend a lot on clothing, food, and entertainment. Older generations have to budget more for healthcare costs.” And there are other consumer behavior factors to consider. Glaser said that shoppers “have been stubborn to give up their frugal ways following the financial crash of 2008, despite unemployment dropping and the economy improving almost every year.”
The spending power and influence of Millennials was also on the mind of Melanie Shreffler, senior director of insights at Cassandra, which publishes the Cassandra Report. She observed that with Trump’s election win, “consumers are hoping for a tax break, which is contributing to this positive sentiment, and could indicate an increase in spending.”
“However, this may not translate to an increase in spending among Millennials, particularly older members of the group who came of age in a down economy and haven’t had a chance to save much for their futures or retirement and want to make up for that lost time,” Shreffler said adding that their own data shows the generational cohort as more frugal.
“We call them the ‘optimization generation’ because they’re rebelling against consumerism of late and being more thoughtful about their purchases,” she added.
In regard to broader policy changes that may occur, Tom Kilfoyle, of the Footnote Journal LLC, said investments in small business has lagged during the Obama administration, but looking ahead, a “favorable tax and regulatory environment should change that outlook. Individual incomes should pick up in the second half.”
Cherie Corso, blogger and beauty products entrepreneur, said the Trump win in November “has released the pent-up frustration caused by Obama administration’s lack of business experience.” She’s hopeful that President-elect Trump can “lower taxes and reduce regulations, which will help inspire and invigorate entrepreneurs.”
Robert King, founder and chief executive officer of Humanscale, a U.S. furniture manufacturer, said he was highly skeptical about Trump’s proposed economic policies. From what he’s heard so far, the president-elect’s “protectionist policies” along with the “current burdensome tax code could be devastating to the U.S. manufacturing sector and the overall economy.”
King said since U.S. manufacturers rely on China and other low-wage regions for goods, prices stay competitive — which benefits consumers as well as suppliers. “If tariffs go up on imports from these countries as Trump suggested, our manufacturing sector would immediately see increased costs, making us less competitive with all countries, and devastating demand for U.S. manufactured goods,” he said.
“Trump’s argument is that these tariffs would protect American jobs,” King explained. “However, the low-wage, labor-intensive jobs in manufacturing will not come back to the U.S. as the cost of labor is so much less in emerging markets. We want to increase our high-skilled manufacturing jobs, not the low-wage jobs, which have already moved overseas. New tariffs would ultimately end up being a tax on the American consumer.”