Will Consumer Confidence Drive Higher Spending at Main Street SMBs?

Consumer confidence is improving, but how quickly that translates into stronger spending remains unclear.

As far as Main Street businesses are concerned, a bump in sales can’t happen soon enough in the wake of the third year of macro challenges.

This, as a spate of economic reports and PYMNTS’ own research suggest that an uptick in buying may not materialize — or at least not as quickly as many would like.

Data released just ahead of the holiday weekend show that consumer confidence, measured by the Conference Board,  was at its highest since April. The reading came in at 108.3 and had been 101.4 in November. 

With some granularity into the actual expectations, 20.4 percent of consumers expect business conditions to improve, up from 19.8 percent — and 47.8 percent of consumers said jobs were “plentiful,” up from 45.2 percent.  

Other recent economic reports show that confidence may not translate into action — namely, through consumers spending at the physical or virtual registers.  

As reported Friday, the Personal Consumption Expenditures (PCE) price index (a measure of inflation) climbed 5.5 percent in November from a year earlier. We note that this is the “headline” number and is the one that includes volatile inputs such as energy and food, which are vital to everyday life and, of course, critical to what’s “left over” to spend on Main Street. 

Consumer spending growth slowed to 0.1 percent in November over October’s level, a pace that was lower than the 0.2 percent seen in October.

There’s a slight mismatch between the reports cited above: The confidence data is from December, and the actual spending and inflation data are from November. We’ll know in the coming weeks if December got an outsized spending bump. There are some indications that this may be a stretch.  

Less than Confident About Wages

In the confidence report, 16.7 percent of consumers expect their incomes to increase, down slightly from 17.1 percent. 

Even though these customers expect the economy to pick up, they’re still not all that sanguine that they’ll be in a better financial position — in terms of higher wages, which would be necessary to keep pace with spending — headed into the next few months.  

If inflation’s still high — and it is — and only a relatively slight percentage of consumers think their incomes will increase, their spending power diminishes. And as has been seen in separate PYMNTS research, compared to a year ago, 32 percent of all consumers reported a decrease in the portion of their paycheck they can save, so it’s harder to have a cash cushion in place to supplement that reduced spending power.  

And in the “Main Street Health Survey Q4 2022: SMBs Brace For A Recession,” two-thirds of Main Street owners anticipate a recession, with roughly 40 percent of firms citing inflation as their biggest challenge. Only 24 percent of SMB owners think inflation will return to pre-2021 levels in less than one year. 24 percent of these firms say it will take more than two years until inflation returns to pre-2021 levels.