FSG Blog
February 21, 2014

US Consumer Scenarios: How Are We Doing?

An upbeat consumer scenario for a change…

Legend has it that the great Wall Street seer Henry Kaufman used to draw macroeconomic insights from the number of cars he would see parked in suburban shopping malls while commuting to work in Manhattan in the 1980s.

In 2014, that kind of data would be far less meaningful. Traditional mall traffic has fallen significantly at the hands of competition from discount retailers and from e-commerce providers such as Amazon, Zappos and the like.  While it’s true that mall anchor stores such as JC Penney, Sears and Macy’s have seen their traffic drop steadily in recent years, the U.S. consumer market picture is much more complex owing to, among other things, changing purchase habits, whole new retail channels, and the influence of social media.

For those of us spooked by the experience of deserted shopping malls, that’s probably reassuring.  And, in fact, earlier bad news about an unexpected decline in retail sales last month was probably the result of unusually harsh winter weather across much of the country.  Hiring lagged, too, probably for much of the same reasons: frigid temperatures and snow, lots of it.

So, January data are not damning; they are just not particularly encouraging, especially after a hopeful surge of consumer spending in the final quarter of 2013.  The Thomson Reuters/University of Michigan Consumer Sentiment Index fell in January.  So did the survey’s Current Conditions Index, which tracks how Americans regard their personal financial situation.  This latter indicator may have been disproportionately affected by stock market turbulence, with the S&P 500 off 3.5% in the first month of the year.

Looking on the brighter side, there’s nothing particularly foretelling about January stock market results — despite the myth that January figures are a reliable predictor of market performance for the year.  Moreover, other indicators of activity in the real economy are at least holding up.  The Conference Board’s index of U.S. leading indicators was up 0.3% in January. In another recent report issued this week, the Labor Department says that jobless claims actually fell in January, despite the disruption to housing and manufacturing produced by harsh weather.

But not a great consumer scenario, either

The take-away from these bits of data is that the U.S. economy is stable and continues to expand and create jobs.  With interest rates expected to remain low, sectors like housing, construction and automotive manufacturing are favorably positioned for at least moderate growth in 2014, with positive effects on employment and income.

But it’s probably too much to hope for a great consumer scenario year — one that would mark a decisive acceleration in what has been, by any metrics, a disappointingly sluggish recovery.

There’s little mystery to what continues to be the big missing pieces: jobs and income growth.  Without these, consumer confidence will be guarded and brittle. And that’s the problem. Public sector hiring potential remains nil. And private employers, large and small, are generally not convinced that market fundamentals justify payroll expansion (or, for that matter, significant investment in new plant and equipment).  As scenario planning consultants, we are quick to point out that this situation can and will change, perhaps sooner than experts predict. But for now the standoff continues.

Getting back to Henry Kaufman.  The man once called “Dr. Doom” is actually pretty upbeat on the big-picture outlook for the U.S. economy and society.  “The fundamentals in the U.S. as a society — as a system — are terrific,” Dr. Kaufman said in a National Public Radio interview given in the depths of the Great Recession.  But, he said, “we have to make sure that we don’t create a society, politically or economically, that is going to hurt that big middle class.”

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