PRINCETON, NJ -- The falling dollar has Wall Street cheering but Main Street consumers have not jumped on the bandwagon, as Gallup's Economic Confidence Index is down slightly from a week ago and from October. Still, consumer spending is up 11% from the prior week and is at its smallest year-to-year difference of 2009 -- down 7% compared to the same week a year ago. While spending comparisons of the past couple of weeks benefit from last year's financial crisis-depressed comparables, even this slight improvement in consumer spending may give retailers added hope that Black Friday weekend sales could exceed expectations.
What Happened (Week Ending Nov. 22)
- Economic Confidence was down slightly during the week ending Nov. 22 compared to the prior week and to the month of October, due to a decline in consumer perceptions of the economic outlook. Gallup's Economic Confidence Index was -32, compared to -29 the prior week and -28 in October. Consumer assessments of the current economy were unchanged from the previous week, with 48% rating the economy "poor" and 11% rating it "excellent" or "good." However, consumer ratings of the economic outlook deteriorated slightly, with 60% saying the economy is "getting worse," compared to 58% the previous week and a month ago. Only 34% of Americans describe the economy as "getting better" -- worse than the 37% of the prior week and of a month ago. While gold prices are hitting new highs, and stocks continue to surge around the world, U.S. economic confidence remains at about a four-month low.
- Consumer Spending was up $7 even as confidence declined, as self-reported daily spending in stores, restaurants, gas stations, and online averaged $69 last week -- an 11% increase over the prior week. More impressive is the comparison to the same week a year ago, with spending down 7% -- its smallest decline from last year's comparables so far this year. Still, about half of the decline in the year-over-year spending comparison is due to the financial crisis-inspired sharp drop in spending last year to only $74 from $81 the prior week -- putting it within a few dollars of its lowest daily spending rate to that point in 2008. In addition, spending last week potentially benefited to some degree from its close proximity to the mid-month payday and the related "paycheck effect." Weeks that include mid-month and end-of-month paydays tend to have higher consumer spending levels than non-payday weeks. A key determinant of how successful this Christmas sales season will be probably depends on whether spending over the next four weeks can match the $90-plus average per week of this same pre-Christmas period in 2008.
- Job Creation was unchanged last week, with Gallup's Job Creation Index at +1, the same as the prior week and a month ago. Twenty-four percent of employees said their companies were hiring -- also the same as the prior week and a month ago -- while 23% said their companies were letting people go, the same as it has been since mid-October. The jobs situation seems to have stabilized but is still dismal, as the overall economy continues to lose jobs and the unemployment rate continues to increase -- not a good background for consumer spending this holiday season.
What to Watch For
The Conference Board's report on its Consumer Confidence Index Tuesday and the Reuters/University of Michigan's report on its Consumer Sentiment Index Wednesday are likely to generate a fair amount of attention this week. Gallup data from the same time period as these surveys suggest both should show declines compared to October. Regardless, these monthly measures relying mainly on early November interviews are already pretty much out of date compared to Gallup's daily monitoring of economic confidence, which suggests that consumer perceptions continue to languish even as the financial markets continue to surge.
Also on Tuesday, the government is expected to report that third-quarter U.S. economic growth was less than the 3.5% previously reported. In turn, it is likely that more observers will be talking about how much of the growth that did take place was due to special government efforts such as the "cash for clunkers" program and the special new home buyers' tax credit. In addition, Gallup's consumer spending data suggest that to the degree that October personal spending increased as anticipated, the increase is also likely to largely reflect these special programs.
Given the Thanksgiving holiday, the government will report weekly jobless claims on Wednesday this week. Gallup data suggest jobless claims will not improve as anticipated, although gauging the government-reported weekly change in jobless claims remains a very challenging task around the holidays. Regardless, Gallup's Job Creation Index shows that the job situation facing most Americans on Main Street has stabilized but not gotten better in recent weeks: the rate of layoffs seems to have steadied, but new job creation has not improved.
Still, Black Friday and the weekend of which it is a part will be the big event for the nation's retailers and the fundamentals of the economy in the week ahead. And in this regard, there is some reason for hope. While the economic fundamentals reported this week may not provide much of a positive background for the most important retail sales day of the year, consumer spending did improve last week. This is in sharp contrast to the comparable week a year ago, when spending declined to nearly its lowest level to date in 2008.
The question going forward is whether spending over the next four weeks will continue to increase, matching or exceeding the $90-plus-per-day rate of a year ago. Last year, spending increased 24% from $74 to $92 over the comparable two-week period. This year, spending will have to increase 33% to match last year's increased holiday spending. While this is a huge challenge given this year's consumer spending trends, once again reaching last year's spending levels in the Black Friday week would suggest that Christmas spending this year could actually match or exceed that of 2008.
While last week's spending might be slightly overstated, due to a partial "paycheck effect," Gallup data suggest that some spending momentum may be building and could continue to increase in the days ahead. Add the strong promotional and discounting efforts that many retailers seem to be pursuing, and matching or exceeding last year's Christmas sales seems possible, although it may be at the expense of retailer margins. Either way, the magnitude of this week's holiday spending bounce should provide key insights into the forthcoming Christmas sales outlook.
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Survey Methods
For Gallup Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. The Gallup consumer perceptions of the economy and consumer spending results are based on random half-samples of approximately 500 national adults, aged 18 and older, each day. The Gallup job creation and job loss results are based on a random half sample of approximately 250 current full- and part-time employees each day. Results from the week of Nov. 16-22, 2009, are based on telephone interviews with 3,446 adults for the consumer perceptions and spending questions. For these results, one can say with 95% confidence that the maximum margin of sampling error is ±2 percentage points. Results for the job creation and job loss questions are based on interviews with 1,953 employees, with a maximum margin of error of ±3 percentage points.
Interviews are conducted with respondents on land-line telephones and cellular phones.
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.
