Consumer Spending Cools Despite Robust Sentiment Surveys

U.S. Consumer Technology Spending Expands Significantly in August

Consumer Spending Cools Despite Robust Sentiment Surveys

Despite the uncertainty expressed at the end of July, consumers’ self-reported tech spending expanded significantly according to August interviewing. In the latest round of results from IDC’s Consumer Purchase & Subscription Index survey, consumer tech spending blew past the April benchmark as COVID-19 concern stabilized and optimism won out.

Devices Spend Showed Big Growth, Services Also Gained

Once again, consumer spend on devices led the way as respondents reported a 17% increase in their device expenditures, up 22% over the April baseline.  Outlays with services rose 2%.

Most devices saw gains, with video game consoles, phone accessories, and PCs/tablets as particularly strong performers. Though down slightly month over month, smart home expenditures remain at a high level (28% above the April baseline) with strong spend across almost all smart home sub-categories.  Smart TVs are the most notable exception.     

Mobile phones are a new bright spot as consumers reported spending more than they spent in April – the first time this has occurred. No doubt, this will be welcome news as the year-end holiday season approaches and Apple and others prepare to launch their new phones.   

COVID-19 Concern Stabilized, Spending Optimism Returned

After jumping 3 points in July, COVID-19 concern stabilized. Consumers’ worst fears about the size and scale of COVID-19’s impact on their economic lives did not come to fruition. 

As a result, consumer optimism about the environment for spending on technology rebounded strongly after a sharp dip in July. The recovery in optimism was particularly robust for devices, where the level of agreement that “the time is ripe” now surpasses previous highs.

Less Job Loss, Wage Reduction, and Business Closings

As time has gone by, a smaller and smaller percentage of consumers mention new negative life events, also contributing to a more optimistic environment. In April, when COVID-19 hit with massive impact, massive job loss, reductions in pay and permanent or temporary business closings, nearly 1 in 4 households reported a negative life event these. By August, this had fallen to 1 in 8.

Consumer Spending on Other Categories has Not Returned to Normal

When asked about their expenditures in six significant categories, consumers only reported spending the same or more than pre-COVID-19 in one category – healthcare. In the other five, a large majority of consumers report spending less than they spent in the month prior to COVID-19’s onset.

This brings to life the reality that consumers generally have money to spend. July data released on August 28th by the U.S. Bureau of Economic Analysis (BEA) shows that the personal savings rate remains high at 17.8%, more than twice the level in February of this year (8.3%). 

Looking Ahead

With COVID-19, consumers are using technology more than previously. While a tiny minority have backed away, the vast majority have not.

In fact, a growing percentage of consumers report COVID-19 has directly led them to purchase new devices, add services, or purchase device insurance or service contracts. 

Key Takeaways & Actionability for Consumer Marketers

  • Consumer tech spending continues to build momentum, as new devices remain the “go-to” choice.
    • The level of sustained consumer demand and expenditure since April continues to impress.
    • LOTS of uncertainty remains, with the presidential election at hand, social unrest still bubbling, and the ultimate impact of COVID-19 and its timing, still unclear. 
  • Device manufacturers and marketers should embrace the current moment as a unique moment and situation in people’s lives and a unique opportunity to drive sales.
    • Inventory matters, but so does customer experience. 
      • Just because demand is strong and some products are hard to find, that does not mean that customer experience does not matter.
      • It does – and consumers will let you know if they are not happy by walking away and by telling others.
      • Make a special effort to ensure that your online and offline marketing, sales, and fulfillment are seamlessly integrated.
        • Map out the consumer journey, how they are feeling at each step, and their ideal outcome at each point along the way.
          • Deliver on this. Doing so will enable you to build trust and make someone a customer for life.
  • Consumer emotions and aspirations matter. Cater (don’t pander) to them. There are two sides to this.
    • Most people are fatigued with COVID-19 and all that is going on. 
      • They could use something positive or light-hearted. Use your creativity to provide it.
    • Many technology purchases are aspirational – part of consumers’ hopes and dreams. 
      • Whether it’s that smartphone they’ve always wanted to be able to afford, that cool new detachable tablet, or that massive TV – treat their purchase with the importance it has for them – not as a mere transaction.
        • Tune your marketing messaging and sales process to this.

IDC’s Consumer Technology Strategy Service (CTSS) leverages a system of frequent consumer surveys to provide B2C marketers with the full view of the consumer they need to anticipate and meet changing consumer needs and to outperform their competitors.

This includes robust monthly data, timely insights, quarterly webinars, and ongoing analyst access.     

In addition to my syndicated service, I work closely with client on custom research projects and consulting. Find out more:


The sun may be sizzling now but Irish consumer sentiment cooled in June

Consumer Spending Cools Despite Robust Sentiment Surveys

Irish consumer confidence drops to weakest level in thirteen months

Pull-back reflects growing global risks and lack of domestic ‘feel-good’ rather than notably poorer conditions of late

Higher fuel bills and housing costs may also be weighing on spending power

June reading points to guardedly positive if more cautious mood among Irish consumers

Irish consumer sentiment weakened notably in June as increased global uncertainty and pressures on household spending power combined to push sentiment to its poorest reading since May 2017.

 While this clearly points towards weakening confidence, I don’t think it suggests the average Irish consumer has experienced any dramatic worsening in their economic circumstances of late.

Instead, the poorer sentiment reading for June ly emphasises how fragile confidence and the financial circumstances of many Irish consumers remain even after several years of strong recovery in activity and employment in the Irish economy.

 The KBC Bank/ESRI Irish consumer sentiment index fell to 102.1 in June from 106.7 in May, the second largest monthly decline in the past twenty months (The index fell a slightly larger 5.1 points in February 2018).

 All of the five main elements of the sentiment index were softer in June than in May. However, it should also be noted that the number of positive responses significantly outnumbered negative responses in each of the five elements in June. So, while sentiment weakened last month, the mood of Irish consumers remains broadly if guardedly positive.

Global economic clouds darken

Although domestic factors played some role, my sense is that the downgrade of Irish consumer sentiment in June was also driven by a more threatening global environment that was reflected in the performance of similar confidence indicators in other countries.

Although US consumer sentiment was broadly unchanged in June, the compilers of that report noted that roughly one in four US consumers mentioned the impact of trade tariffs on the economy and 80% of those expected an adverse impact. In the UK, ongoing domestic political uncertainty, a related lack of clarity on Brexit and signs of weakness in the housing market ly contributed to a poorer confidence reading in June.

 Euro area consumer confidence fell to an eight month low in June with fifteen of the eighteen countries (excluding Ireland) reporting monthly declines. In addition to the threat of a global trade war, Euro area consumers are also dealing with the vexed topic of immigration and a range of issues related to the electoral platform of the new Italian government. 

Irish consumers notably more cautious about jobs market- in spite of tumbling jobless rate

The sense of a notably more threatening external backdrop to Irish economic prospects prompted only modest slippage in consumers’ expectations for the Irish economy in the next twelve months.

 A complicating factor in terms of this area of the survey may have been a number of domestic commentaries during the survey period that focussed on perceived risks of ‘overheating’.

 These ostensibly opposing risks may have led to a comparatively small decline in this area of the sentiment survey.

 If they were only marginally less confident about prospects for the Irish economy last month, consumers were notably less optimistic about the outlook for jobs.

This element of the survey posted its weakest reading in thirteen months in spite of a sequence of new job announcements during the survey period.

From the standpoint of the average consumer, the major threat posed by any weakening in the global economic outlook is to Irish job prospects. So, it is not entirely surprising that this element of the survey weakened more than the general economic outlook.

I also feel the prospect of significant redundancies in a number of high profile Irish companies could be weighing on the jobs element of the sentiment survey as could a broader sense that strong headline employment and unemployment data have not translated into a corresponding pick-up in wage growth.

 It is important to note the contrast between the cautious message of the June sentiment survey with the markedly more positive job market signal coming from official unemployment data which show a drop in the jobless rate drop to 5.1% last month, the lowest since October 2007.

 As in other countries, a strong dynamic in job creation (and a corresponding drop in unemployment) in Ireland appears to have been accompanied by notably more muted wage growth and continuing concerns about job security. This apparent trade-off means the typical consumer’s assessment of job market conditions is ly to be notably more downbeat than that implied by official data.

This divergence and the painful memory of the scale of job losses seen during the downturn also means consumers are ly to mark down their assessment of the Irish jobs market significantly when faced with new threats to the broader economic outlook.

Survey suggests continuing strains on spending power

The June survey also saw increased caution on household finances, with monthly declines all three elements of the survey concerned with consumers’ spending power and plans.

Again, it should be noted that in each instance positive responses continue to exceed negatives.

So, Irish consumers continue to report some measure of progress in their personal financial circumstances but the sentiment survey emphasises how modest and uneven this has been.  

 Only one in four consumers takes the view that their household financial situation has improved in the past twelve months and a similar number expect gains in the coming twelve months.  In these circumstances, many consumers may be quite sensitive to developments such as the recent run-up in oil prices.

  As diagram 2 illustrates, a softer trend in oil prices coincided with improving sentiment through the summer of 2017 while the firmer tone in energy costs through the winter coincided with more subdued sentiment readings.

In a similar fashion, ongoing concerns about rapidly rising housing costs may have weighed on consumers assessments of their circumstances.

Consumer spending healthy rather than white hot

The sharpest pull-back in the June sentiment survey related to the buying climate, which posted its weakest reading in a year and a half.

 This is probably the most volatile element of the survey and I would expect some recovery in July as consumers hunt for bargains in the summer sales.

Indeed, one factor in the poor June reading in this component of the survey is the ly deferral of purchases in anticipation of heavy price discounting to come as Irish consumers have become notably more price sensitive in their behaviour of late.

 While I expect spending plans to recover in July, I think some element of the poor June reading reflects increasing caution on the part of Irish consumers.

Potentially threatening global economic developments, limited income growth for the typical household and, for many, the financial and psychological scarring of the crisis are all significant arguments for restrained increases in consumer spending.

 Similarly, the choppy nature of monthly changes, both in this element of the survey and in retail sales data, hints at an Irish consumer driven by discounts rather than ‘splashing the cash’.

The sense that we are in an era of careful rather than conspicuous consumption ly reflects structural changes in the behaviour of Irish consumers as well as suggesting the Irish economy as a whole is not in overheating territory.

As diagram 3 below illustrates, fluctuations in Irish consumer sentiment in recent years have tended to correlate with changes in the pace of retail sales growth.

 A brief pick-up in late 2017 has given way to subdued sentiment and a softer pace of increase in spending in the first half of 2018.

This is also consistent with the weaker than expected VAT and excise receipts in the June exchequer returns released earlier this week.

 The June sentiment reading is still consistent with a healthy increase in Irish consumer spending, particularly as the caution of the ‘typical’ consumer is tempered by strong increases in employment and population. I still expect the aggregate increase in consumer spending will be in the region of 3% in volume terms in 2018.

 However, the general tone of the June survey suggests that, from the perspective of the average Irish consumer, the economic climate is still one of reasonably cool conditions rather than soaring temperatures at present. Again, this is broadly consistent with the mixed message emanating from mid-year tax returns where, excluding corporation taxes, receipts were up a modest 3.8%.

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