How are U.S. consumers doing? It depends on who you ask, of course. The middle manager whom just got laid off will tell you things aren’t so great. So will the elderly couple facing rising health care costs and a stagnating home value.
For the economy as a whole, however, things are slowly improving. The job market has bounced back and incomes are clawing their way back up. Inflation is low, with grocery prices down from their heady levels of early 2014 and gasoline is at half the year-ago levels. And thanks to the rising stock market, 401Ks and IRAs have grown in value.
Data released Friday by the Bureau of Labor Statistics showed a 295,000 increase in February employment, capping a year in which almost 3.5 million additional jobs were added to the economy.
Total disposable income increased by over 4 percent on a 12-month smoothed basis in January, the thirteenth straight month of accelerating growth.
The consumer price index, or CPI, has nose-dived in the past three months, due largely to the sharp decline in gasoline prices. In December, crude oil prices were half their September level, causing many retail economists to predicting a gangbuster holiday season because families would spend their savings at the mall.
It didn’t really work out that way, however. Personal consumption expenditure growth, after accelerating each month from March to November 2014, actually slowed in December and January on a 12-month smoothed basis, according to data from the Commerce Department.
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Understandably, there was a big drop in spending on groceries and gasoline. But the expectation that people would drive out to the mall and spend their gas savings on discretionary items has simply not happened.
Cardlytics co-founder Scott Grimes, whose firm analyzes consumer spending patterns based on bank card transactions from 83 million households, feels that consumers are still affected by the recession. “Our belief, which is shared by many of our bank partners, is that we have a consumer who still remembers a very tough economy not that long ago, so people are being cautious. While inflation has been low, per capita wage growth has also been very low. We know the majority of households essentially live paycheck to paycheck. They haven’t seen their paychecks change materially, so they’re not changing how they spend.”
With one possible exception. “Casual dining was the only vertical in which there was an increase in spend, so people with the money are eating out a little more,” said Grimes.
On apparel, Grimes believes that apparel spending has not grown in the past two years, partly because consumers have been educated to buy on sale. “When big promotions occur, we see increases in spending.”
By definition, if consumers aren’t spending their income, they’re saving it. Personal savings in the U.S., though still well below the double-digit levels of the early ’90s, has increased to two-year highs in each of the past two months, with the personal savings rate jumping in January to almost 5.5%.
All of this would suggest that people still fear that the recovery might be tenuous, underscored last week by the Conference Board’s Consumer Confidence report. After rising steadily for most of last year, confidence suddenly dropped in February, with the biggest decline occurring in the part of the index that measures expectations for the future.
People are also changing the way they spend. Though the use of revolving credit, which includes credit cards, increased slowly from March to November, total credit balances remains around 20 percent below pre-recession levels, and have dropped in each of the past two months.
Consumers are using debit cards for more of their purchases, giving them increased visibility into their spending and helping to avoid spending money they don’t have. According to Cardlytics, 70 percent of Americans use debit cards for their everyday expenses, and more are using online access to their bank accounts to monitor their balances.
According to Grimes, it’s all about playing it safe. “Since 2008, we’ve seen a slow and steady increase in debit card usage, with a third of all people watching their money through mobile apps. Although consumers are very reticent to use debit cards for online purchases, because they like the extra layer of insulation between the card account and their checking account, they definitely feel that debit cards keep them from overspending.“
Grimes gave another example. “We had a woman in a focus group who described it perfectly. She told us that debit cards are like milk. When she drinks milk, she doesn’t get into trouble. People are trying to stay out of trouble.”