What is the best way to understand the impact of confidence on spending? Of late, the only thing that’s clear is that the relationship is far from direct.
In May, the post-election runup in consumers’ spending confidence—which has been led by Boomers— showed signs of topping out. It was the first time since September that confidence had not at least edged higher.
The runup in confidence, however, has not generated a clear benefit to consumer spending. This has been most evident in retail sales—where the growth trend was instead revised lower in the latest government-reported retail data. See more at this post.
So, is there a better way to interpret the impact of confidence on spending?
One answer may be to focus on the confidence trends among the Gen X population, where the strongest job and income gains make it the best opportunity among the generational groups.
The steady trend in Gen X confidence is in fact most consistent with the modest overall retail trends of the past three years. And the Gen X trends are most consistent with recent category weakness in clothing, food and grocery—and strength focused in homegoods and electronics.
In terms of other insights from the latest data on Spending Confidence by generation and category:
- Millennials. Still the weakest link, but the ongoing decline in confidence among Millennials showed signs of bottoming out in May. Confidence to spend actually picked up slightly in the electronics category. But that was offset by further declines in the clothing category.
- Gen X. Health and beauty is another category where Gen X showed somewhat stronger confidence to spend in May. Gen X is a key segment for HBA partly because Gen X households include the teenage Gen Z population living with their parents.
- Boomers. Boomers were the only generational group to show a gain in confidence to spend in May. The major exception was a decline in confidence to spend in the homegoods category, which was the first decline in that category since September. Gains were focused among working-class Boomers.
- Silent Generation. Confidence among this oldest generation declined significantly in May for the first time since October. This may not bode well for Boomers since their sentiment has been closely shadowing the Silent Generation.
- By Category. Electronics was a clear exception among categories in May. It showed significant strength, which was fairly broad-based across generations.
These are among the takeaways from data through May from the Spending Confidence Index™, which is the proprietary index of consumer sentiment created by MacroSavvy™ based on data from Prosper Insights and Analytics™.
For more background about the Spending Confidence Index™ and its components, the white paper at this link explains why the new index is an improvement over existing measures of confidence.
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