Americans and the economy as 2015 begins: Caution continues.

As we’ve closed out the year 2014, more than a few people – from politicians to business leaders and business journalists – have sought to reassure us that the American economy is not only on the right track, it’s back in a big way.

Bronx CheerBut evidently, word hasn’t trickled down to “John Q. Public.”  Or if it has, it’s been greeted by a gigantic Bronx Cheer.

We have the latest evidence of this in management consulting firm McKinsey & Company’s most recent annual Consumer Sentiment Survey, which was conducted in September 2014 with results released last month.

The bottom-line on consumer sentiment is that despite the recent spate of decent economic news and higher employment figures, people are still reluctant to increase spending, and thriftiness remains the order of the day.

While people don’t think things are deteriorating … they don’t think they’re becoming much better, either.

So … treading water is about all.

It’s not too difficult to figure out why sentiment continues to be so skittish.  After all, median household income for Americans, adjusted for inflation, actually declined in recent years and hasn’t rebounded.

With people still feeling the earnings squeeze, it’s only natural that McKinsey’s findings show consumer sentiment still in the doldrums, with only ~23% feeling optimistic about America’s economy.

Consider these further findings from the research:

  • About 40% of respondents report that they are living “paycheck to paycheck”
  • Around 39% are at least somewhat worried about losing their job
  • Approximately 34% feel they have decreased ability to make ends meet financially

Not surprisingly, respondents with lower family incomes (under $75,000 per year) have higher concerns, and roughly 40% of those households report cutting back or delaying purchases as a result.

[Even among people living in households earning $150,000+ per year, one in five say that they’ve cut back or delayed purchases because of financial uncertainty.]

Activities we commonly associate with recessionary eras continue to be practiced by consumers.  According to McKinsey’s research, those practices include:

  • Looking for ways to save money (comparison shopping, coupon use, etc.): ~55 of respondents report doing so
  • Purchasing more products online to save money: ~48%
  • Cutting spending over the past year: ~40%
  • Doing more shopping at “dollar stores”: ~34%
  • No longer preferring/buying more expensive product brands over private-label substitutes: ~33%

Where things really look different “on the ground” than in the economists’ forecasts is what the public is saying about their future behaviors:  McKinsey logoMcKinsey believes that consumers and their attitudes have been permanently changed by the years of austerity.

The strongest indication of this?  Nearly 40% of the survey respondents say that they’ll likely never go back to their pre-recession approaches to buying and spending.

As McKinsey concludes in its report:  Cautious is the new normal … and it’s unlikely to change anytime soon.

More details on McKinsey’s survey findings can be viewed here.

Americans’ Personal Outlook for 2014: The “Blahs” Have It

economic pessimismThe U.S. stock market may have achieved record-high performance in 2013, but a December 2013 poll of American consumers, conducted by Harris Interactive, is painting a decidedly different picture when it comes to the outlook for the New Year.

The degree of pessimism manifests itself in a higher percentage of adults believing that the economy will get worse (~32%) compared to those who feel it will get better (~27%).

The most optimistic contingent are Baby Boomers (age 49 to 67), where nearly 30% feel the economy will improve in 2014.  The opposite is true with the very youngest group (age 18 to 36), where only ~23% think the American economy will improve this year.

And the most pessimistic group when it comes to believing the economy will get worse?  That would be the oldest contingent (people age 68 and older), ~40% of whom share this opinion.

The message Americans seem to be sending is this:  “We may be in the fifth year of a recovery … but we’re still waiting for it to hit us.”

Comparing these Harris figures to what the pollsters recorded a year earlier, it’s interesting that the percentage of people who envision the economy “staying the same” has grown by ~11 percentage points.  So, treading water appears to be the order of the day.

How Americans are responding in their own personal lives to their views of the economy correlate to their level of general optimism or pessimism.  Here’s what the survey found in terms of their intentions for the year:

  • Cut back on my household spending:  ~45%
  • Save more in the year ahead:  ~40%
  • Pay down my debt level:  ~40%
  • Save more for retirement:  ~23%
  • Get rid of one or more credit card:  ~15%

Broadly speaking, the Harris poll findings point to a distinctly blasé environment.  And it helps explain the mediocre holiday shopping season we just witnessed – more than inclement weather and a shorter shopping days calendar can explain.

More Harris Interactive poll result details are available here.

The employment cunundrum: “Workers, workers everywhere … and ‘nary one to hire.”

Labor shortage in the midst of high unemploymentThese days, conservative estimates are that ~13 million Americans are seeking employment. And yet, more U.S. companies are reporting that they can’t find qualified workers to fill their open positions.

In fact, more than half of American employers surveyed by Manpower Group, a leading staffing group, report that they’re having trouble hiring qualified workers. That’s nearly 40% higher than what was reported in the company’s 2010 survey.

The most obvious reason for the incongruity is the disconnect between the background and capabilities of available workers and the skill sets companies are seeking.

But there may be a few other factors at work as well. Spokespersons for Manpower Group suspect the following:

 The 2009 recession made it very easy for companies to find qualified candidates … but those days are now over.

 Employers are less willing to invest the time or dollar resources to train new employees for specialized or unique work.

 Employers may be less willing to hire candidates from outside their area so as to avoid incurring relocation expenses … even as job candidates may also be less willing to consider moving because of the soft housing market.

Melanie Holmes, a Manpower vice president, puts it this way: “Employers are getting pickier and pickier. We want the perfect person to walk through the door.” She and other specialists contend that companies need to get more realistic about the situation and react accordingly.

The Manpower survey results were part of a large global research study of ~40,000 employers worldwide. The trends it sees of greater difficulties in hiring were clearly evident in several other countries, besides just the U.S. (India, U.K. and Germany), whereas in China the trend was just the opposite.

More results from the 2011 Manpower Group survey can be found here.

Valentine’s Day Spending: All Hearts and Flowers?

Valentine's Day is hearts and dollarsWith the recession finally receding, are we now seeing an uptick in spending for Valentine’s Day — arguably the most romantic day on the calendar?

According to a January Consumer Intentions & Actions questionnaire conducted among ~8,900 participants for the National Retail Federation by survey firm BIGresearch, American adults over age 18 will spend an average of ~$115 on traditional Valentine’s Day merchandise this year. That’s up more than 11% over 2010, and collectively represents spending of nearly $17 billion.

But we have yet to return to the levels of Valentine’s Day spending that were reached in 2007 and 2008 – the highest on record.

Jewelry appears to be the big item on the Valentine’s Day shopping list. Approximately $3.5 billion is expected to be spent in this segment this year, which is up more than 15% from the ~$3.0 billion spent in 2010.

Dining out is another popular category, but its growth is not expected to be nearly as big as jewelry’s – just 3%. The six most popular categories as determined in the NRF study include:

 Jewelry: $3.5 billion
 Dining out: $3.3 billion
 Flowers: $1.7 billion
 Clothing: $1.6 billion
 Candy: $1.5 billion
 Greeting cards: $1.1 billion

[I was surprised at the greeting cards figure. True, cards are a lower-price item compared to the other categories, but the number still seemed pretty meager. It turns out that only about half of the consumers surveyed reported that they planned on purchasing a Valentine’s card, which was lower than I thought would be the case.]

Not surprisingly, younger adults (age 25-34) are expected to spend significantly more than their older counterparts. They’re projected to spend an average of nearly $190 on Valentine’s Day merchandise compared to only about $60 spent by adults over 65.

But it’s not just because of “sweet, fresh young love” versus “tired, worn-out old love.” It’s because young couples and young parents are often buying not only for each other, but also for their co-workers … their children … their children’s friends … and their children’s teachers as well.

And here’s another statistic that won’t surprise very many people: Women will receive Valentine’s Day gifts averaging around $160, which is double the value of gifts for men.

Now, that’s a dynamic that’s likely never changed … and probably never will!

China overtakes Japan … and who’s surprised?

Chinese + Japanese FlagsThe somewhat breathless headlines earlier this week reporting that China had nudged past Japan to become the world’s second largest economy behind the United States, didn’t particularly grab me.

In fact, it seems almost anticlimactic that Japan has finally been overtaken. Hasn’t Japan’s economy been in the doldrums for years?

In some sense, it seems like Japan has hardly mattered now for the better part of 20 years. By contrast, economies like those in Brazil, India and the Far Eastern countries have been the ones shining brightly and getting most of the business coverage.

Actually, I’m old enough to remember a time, back in the 1980s, when the rise of Japan’s economy was of huge concern to American and European manufacturing and banking organizations. “Japan, Inc.” was a continuing topic in the pages of BusinessWeek and Fortune magazines. Japanese managerial styles and its participatory worker groups were the focus of many a management seminar and how-to business book.

What happened? During the 1980s, Japan’s economic miracle turned into a massive real estate bubble before imploding in the early 1990s. What came next was a “lost decade” – a stagnant economy from which the country has never really recovered.

And today, demographics and other factors are catching up with the country. Things like low population growth (and an aging population to boot), weak domestic demand for goods, slow growth in exports, a strong currency and even deflationary pricing forces … these are the characteristics most observers assign to the Japanese economy.

Some economic miracle, huh?

Meanwhile, China keeps chugging away, charting 10%+ annual growth rates even as the average Chinese citizen continues to earn just one-tenth of what American and Japanese workers make.

But if we look a little more closely at Japan’s experience, there may be lessons for us here in the U.S. In fact, some characteristics are uncanny in their similarity. More ominously, some economists believe that China is on course to overtake the U.S. and become the world’s biggest economy inside of ten years.

That seems startling on the face of it. But when you consider the symbiotic relationship between the U.S. and Chinese economies – we’re China’s largest export customer and they hold a ton of our dollars – it becomes easier realize just how much our two countries need one another.

“Accidental allies,” it turns out.