The Consumer Discretionary Spending Stall

Uh oh. And just when we thought we were going to get such good news about retail spending, the data has to come out to rain on our parade. Yes, thanks to the holiday season and consumers feeling a little more bullish about the economy and the stability of their jobs and also feeling a little richer thanks to falling gas prices, consumer confidence overall was up between November and December.

But, when it came to plunking down those dollars at retailers, the situation was slightly different, at least according to Chain Store Guide’s January 2015 Consumer Spending Report. CSG’s U.S. retail spending index  – which measures consumer propensity to send on retail and discretionary spending – stayed about flat, even though the consumer spending monitor – which measures the overall spending intentions of U.S. consumers – increased 5.2 points. Consumers may be feeling better about the economy, but they aren’t yet willing to spend at a level consistent with their overall optimism.

“This rise is seen when looking at the change in the percentage of adults that believe the economy is fair or poor” the report said. “[In November] a combined 73.2 percent answered that they believe the economy is fair or poor; [in December] 68.7 percent answered the same.”

Confidence in the economy translates into the number of consumers willing to spend more, as evidenced by November and December’s reports. The CSG’s most recent data shows that adults between the ages of 18-39 had the most optimistic view of their personal finances with 38.8 percent stating their finances are getting better; 26.6 percent of 40-64 year olds, and 19.5 percent of those 65 and older said the same. The amount of consumers saying their personal finances have gotten better has also improved nearly 4 percent from the month prior.

But when looking at retail spending during November and December, those numbers were about flat, with a slight dip of ~.7 percent. According to the report, the dip came from the number of adults who said that they planned to decrease their spending across each category of discretionary spending. An even larger number said they planned to reduce spending in December. While the consumer spending figures have been on the rise the past two months, following two months decline, the retail spending index has dipped since October and is expected to continue to fall.

“[In December], 37.7 percent said they would spend more this month compared to 28.6 percent who said the same. Fewer adults (34.1 percent) are also reporting that they expect to have added expenses or shortfall in income in the next 30 days,” the report said. “Spending remained relatively stagnant this month.”

While the retail spending index may go down, the report indicates that consumers spent more dining out during November and December. Nearly 82 percent of consumers dined out more than three times a week during those months. More than 75 percent of adults said they expected to spend less than $20 per person, while 15.7 percent said they’d spend $20-35 per person; 4.8 percent expected to spend $35-$50, and only 2.3 percent expected to spend more than $50 per person. The report also indicates that casual dinning topped consumer preference with 60.3 percent of respondents saying that they dined out at casual restaurants, 28.6 percent at fast food restaurants and only 5.7 percent at fine dining establishments. November and December were the first time the restaurant spending index increased since September when it began to dip.

“The results from the majority may come as no surprise simply because we were in thickest part of the holiday season which suggests that consumers are not going out to eat as much as usual in order to save money for gifts or holiday travel,” the report said.

Although a 5.2 percent increase in the consumer spending monitor may not seem like a major jump, the figure is significant. This increase represents the highest consumer confidence of the year — a statistic that is expected to continue to rise throughout 2015. More men believe the economy is getting better than women (38.2 percent versus 28.9 percent) and there was also a difference across political spectrums. In November, 19.4 percent of Republicans and 42.8 percent of Democrats stated that they believe the economy is getting better; but December showed 22.3 percent of Republicans and 51.6 percent of Democrats said the same.

No matter which side the consumer sits on, consumer confidence translates to higher spending across all industries. The higher the percentage of consumer confidence is in the economy, the more likely they are to spend more, the consumer spending index indicates.

“While consumer confidence is quickly improving, with the holidays over, spending has slightly slowed down, but is still higher than it has been in previous years,” the report said.