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Economy
Slim Hope for Back-to-School Sales
Economy

Slim Hope for Back-to-School Sales

by Dennis Jacobe

PRINCETON, NJ -- With the critical back-to-school season approaching, the nation's retailers are hoping consumer sentiment will improve and consumer spending will follow. But new Gallup polling shows 49% of consumers rating the economy as "poor" in the third week of July, not much different from June and early July readings -- and not good news for the nation's retailers.

Consumer Ratings of the Economy Remain Negative

Last week started with talk of the Fannie Mae and Freddie Mac bailout -- an effort to save these two so-called government-sponsored enterprises that form the core of today's mortgage finance system. However, by midweek, oil prices were plunging and the stock market was surging, led by an improvement in financial-sector stocks as investors became increasingly familiar with the "too-big-to-fail" concept.

Gallup's continuous measurement of consumer economic perceptions showed little response last week, as the financial sector experienced the onset of the Fannie/Freddie crisis that seemed to match in intensity the stress the Bear Stearns debacle placed on the financial sector. While the daily variations in ratings do suggest some consumer response within the week to last week's events, consumer perceptions for the week were just about as bleak as those for the previous week.

The percentage of lower-income Americans rating current economic conditions as "poor" was 56% in June, and after flirting with 60% during the first two weeks of July, it fell back to 56% in the third week of the month. At the same time, "poor" ratings among higher-income Americans that were at 38% in June have bounced around during the first two weeks of the month before settling at 44% during the most recent week. The increasing number of higher-income consumers holding a negative view of the economy should be of particular concern to high-end retailers.

Consumer Expectations Remain Highly Negative

Similarly, consumer expectations for the future course of the economy have remained highly negative, with 87% of Americans saying economic conditions are "getting worse" during each of the first three weeks of July -- the same as the June reading, and little different from the 86% of May and the 85% of April. And, these negative expectations have remained high across different income groups.

Commentary

Right now, consumers are being buffeted by some strong cross-currents. Not only do consumers face all the major problems ranging from high food and energy prices to declining home values, but they are also seeing the specter of Treasury Secretary Henry Paulson continuously promoting the government's support for Fannie Mae and Freddie Mac while simultaneously reassuring the public about the safety and soundness of the U.S. banking system. On the other hand, last week, oil prices seemed to give way for the first time in months, gas prices eased slightly, and the stock market soared.

At this point, the current dismal consumer perceptions of the economy suggest fairly bleak back-to-school sales. And the end of the federal rebates will not help.

Gallup Poll Daily tracking does suggest that consumer perceptions may be reacting to these shifting events even though they remain at bleak levels. For example, the percentage of consumers rating the economy as "poor" hit 54% last Wednesday, after all the turmoil in the financial sector early last week. As conditions improved later in the week, the percentage seeing the economy as "poor" fell to 41% on Saturday.

While some of these shifts in consumer sentiment may be short-lived (and thus, may not show up in the weekly averages), they also suggest that consumer perceptions of the economy are reacting to daily events. In this regard, if gas prices show some more declines, equities continue to improve, and the Treasury extends its support of the banking system more broadly, there could be at least some modest improvement reflected in Gallup's daily monitoring of consumer perceptions in the days and weeks ahead. And, such a shift is about all the nation's retailers have to hope for as the important back-to-school season gets underway in a few weeks.

Survey Methods

Gallup is interviewing no fewer than 1,000 U.S. adults nationwide each day during 2008. The economic questions analyzed in this report are asked of a random half-sample of respondents each day. The results reported here are based on combined data of more than 8,000 interviews in January, February, March, April, May, and June. For results based on this sample, the maximum margin of sampling error is ±1 percentage point.

The questions for the first and second week of July are based on combined data of more than 3,000 interviews conducted June 30 to July 6, July 7-13, and July 14-20, 2008. For results based on this sample, the maximum margin of sampling error is ±2 percentage point.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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