Is Global Consumer Confidence Peaking?

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Bart van Ark and Denise Dahlhoff from The Conference Board discuss findings from the latest Global Consumer Confidence Index.

Globally, nearly two-thirds of consumers are upbeat about their job prospects and their personal finances, notably in North America and Asia. They were less bullish in Italy, Spain, the U.K., the Middle East and Latin America. However, not all consumers whose confidence levels are high are happy to spend; only half of them feel the current times are “excellent” or “good” for purchasing.

Those are among the major takeaways from the Global Consumer Confidence Index for the first quarter of 2019, a study of consumer sentiments released two weeks ago by The Conference Board, a nonprofit think tank based in New York City. The index declined slightly in the first quarter of 2019 to 106 from 107 in the previous quarter, but is still at historically high levels since its inception in 2005, The Conference Board said in a press release. (A global score above 100 means that there are more optimistic consumers than pessimistic ones.) “Consumers are likely to sustain spending, but more cautiously, amid a slowing global economy,” it stated. The survey covered 32,000 consumers in 64 countries across Asia-Pacific, Europe, Latin America, the Middle East and Africa, and North America.

Bart van Ark, chief economist and executive vice president at The Conference Board, listed the two most important measures of the index: One, it tracks the “temperature” of consumer confidence, and what it might mean for consumer spending going forward. Two, consumers provide a good lead on where the economy is headed. “We know that confidence provides a couple of months’ lead in terms of a weakening or a strengthening in the economy.”

Even as it has slipped by one point in the latest quarter, “global consumer confidence may be peaking, suggesting that global economic growth may gradually slow in the coming quarters,” van Ark said. “[However], we don’t think that it will get stronger. This is as good as it gets.”

The index data offer valuable insights for companies to plan their international strategies, identify opportunities for regions or markets to enter, as well as tweak their marketing strategies, said Denise Dahlhoff, a senior researcher at The Conference Board who is also a senior fellow at The Lauder Institute at Wharton.

“Global consumer confidence may be peaking, suggesting that global economic growth may gradually slow in the coming quarters.” –Bart van Ark

Van Ark and Dahlhoff noted specific patterns in consumer confidence across regions. For example, two of the most “confident” regions in the world — North America and Asia Pacific — go in different directions in terms of spending intentions. “In North America, we see a softening, [whereas] in Asia Pacific, we see an increase in spending intentions,” Dahlhoff said. “We have seen some people cutting discretionary spending on categories like holidays or clothes, out-of-home entertainment like dining out and going to shows and things like that. They are just in a holding pattern.”

Van Ark and Dahlhoff discussed the highlights of the latest Global Consumer Confidence Index on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

Typically, consumers account for between 50% and 70% of any economy, depending on the country, said van Ark. “We would get concerned if the index declines by multiple points. Luckily, at least globally, we are not at that point yet.” The consumer confidence index provides an “international comparative picture” in terms of where “the hotter markets” are, he added. Time series forecasting is its other major attribute, he noted. “If we see this index continuing to level off, we would say that there are just not more dynamics in consumer growth.”

The one-point drop in consumer confidence levels between the last quarter of 2018 and the first quarter of 2019 reflected a softening in many mature markets such as North America, Europe, Japan and other advanced Asia-Pacific economies. However, confidence levels continued to strengthen in emerging markets, The Conference Board noted.

The high levels that the index is at right now means that consumers’ confidence is vulnerable to unpredictable shocks to the economies of their countries, van Ark said. In such a setting, consumers tend to be cautious, he added.

A Good Time to Spend

“Half of consumers say it’s an excellent or a good time right now to spend,” said Dahlhoff. In North America, notwithstanding “a softening in spending intentions,” the overall signals are positive for consumer spending, she added. For instance, in a category like technology, North America is the only region where spending on technology is still growing, she added.

The survey digs deeper to understand why consumers in some countries are less optimistic than in others. “The leading concern, across the world, is the [outlook for the] economy, followed by job security, but also health and work/life balance issues,” said Dahlhoff. Even where consumers are confident about their job outlook or their financial situation, “their spending intentions might not align with that because they are more cautious. They take a wait-and-see attitude because they don’t know what’s coming. There is a little bit of hedging against potential risks in the future.”

“The leading concern, across the world, is the [outlook for the] economy, followed by job security, but also health and work/life balance issues.” –Denise Dahlhoff

The survey also captures the varying degrees of concerns that consumers have about jobs. “About two-thirds of consumers feel that job prospects are good or even excellent,” Dahlhoff said. “However, there are large differences between regions. Typically, in Europe, as well as in Latin America, people tend to be more concerned about job prospects than, for example, in North America and Asia-Pacific.”

Some of that divergence has to do with the flexibility of the labor markets, and cultural issues such as how comfortable people are in switching jobs, Dahlhoff noted. In the Asia-Pacific region, even as consumers exhibit positivity about spending intentions, their main concern is job security, which is bigger than their concerns about their economy, she said.

Cues for Businesses

The index is “a good indication” of where economies might be heading, and it also gives companies a guide “to figure out where to go and how to adjust their strategies in those countries,” said Dahlhoff.

“Business leaders and policy-makers are more aware of these risks and begin to anticipate and adjust,” said van Ark. For example, “if businesses see trouble down the road, like the China trade conflict or Brexit, they begin to pull back on investment,” he added. Consumer confidence, on the other hand, tends to be more volatile, he pointed out. While consumers don’t look, say six months ahead and plan their purchases, they pull back if a shock occurs, but that “usually blows over very quickly, too,” he noted.

The advance of globalization and digital connectivity make it especially important for companies in the U.S. to understand consumer preferences elsewhere in the world, be it China, Turkey, France or Germany. For instance, companies could tap into online shopping across borders through direct-to-consumer channels or through platforms in their target countries, Dalhoff noted. The online consumers that the index tracks are “the most important,” particularly for companies that are reaching out to the middle-class and higher segments, van Ark noted.

“We would get concerned if the index declines by multiple points. Luckily, at least globally, we are not at that point yet.” –Bart van Ark

In any event, smart businesses will of course find ways to overcome dismal survey scenarios. As Dahlhoff observed, “Marketing can do a lot to get you to buy something that you hadn’t maybe initially thought of buying.”

Businesses and others using the Global Consumer Confidence Index should view it not in isolation, but as one in a basket of indicators, said van Ark. The Conference Board puts out other indices such as on consumer confidence in the U.S.; a Leading Economic Index that forecasts economic activity in the U.S.; one on global business cycles; and another on CEO confidence. Other insights could be gleaned from purchasing managers indexes, and data on unemployment claims and the housing market, he added. As it happens, The Conference Board recently added the Global Consumer Confidence Index to its portfolio after acquiring it from Nielsen, which first began the survey in 2005.

Degrees of Confidence

In terms of specific regions, consumers in North America were the most confident with a score of 118, with a close second in Asia-Pacific (117), followed by Africa and the Middle East (96), Latin America (95) and Europe (83). Consumer confidence was the highest in the Philippines (133), followed by India (132) and Vietnam (129), while it was the lowest in South Korea (49), followed by Ukraine (55) and Russia (62), according to the index data.

In the U.K., consumer confidence has stayed unchanged at 98 in the last two quarters. That may be because the U.K. economy has been strong for a while, van Ark said. “[However], they used to feel quite a bit stronger before,” he added. While European Union leaders earlier this month agreed to postpone Brexit until October 31, “a shock could almost immediately push the U.K. economy into a recession.”

Africa and the Middle East show mixed trends. In countries like Egypt and Morocco, “there’s overall more sentiment of pessimism than of optimism,” said van Ark. But Saudi Arabia and the United Arab Emirates display “a lot of bullishness in terms of the potential for growth in the economy,” he added. In Western Asia, Pakistan shows a sharp drop in its consumer confidence score from 117 to 111 over the last two quarters. Much of that may be related to large budget cuts and other financial issues Pakistan faces now, as well as its military conflicts with India, he explained.

“Marketing can do a lot to get you to buy something that you hadn’t maybe initially thought of buying.” –Denise Dahlhoff

Comparisons of confidence levels across countries or regions have to be nuanced, van Ark cautioned. For instance, cultural differences play a role in consumer sentiments, he noted. “Americans tend to be rather optimistic – they look at the bright side of life,” he said. “But if you go to Europe, and also within Asia, say South Korea or Japan, consumers tend to be a little bit more pessimistic.” Japan’s score of 83 in the latest quarter is down five notches from that in the last quarter of 2018. If Japan’s score were to move up to 100, that would represent “a really big improvement,” he said. On the other hand, if Malaysia’s score were to drop from the current 115 to 100, “it would be pretty bad.”

Missing Links

Businesses that use the index as a guide have to factor in several peculiarities and shortcomings:

  • The index is based on internet surveys of 500 households in each of the 64 countries, and therefore, “it’s not 100% representative of the population, particularly not in poor or emerging markets [that may not have adequate digital connectivity],” said van Ark.
  • Some of the poorer countries with low internet coverage are excluded, van Ark said. One pre-requisite for inclusion in the index is that at least 60% of the consumers in a country are online; that is not true for some African and Central American economies. As a result, the data is insufficient for those regions. However, the index covers Latin America “very well,” and includes South Africa, the United Arab Emirates and Saudi Arabia, “so we feel good about the global coverage,” he added.
  • The timing of the survey (it was conducted in February) may also have influenced the confidence levels that consumers displayed. For example, the economic outlook in February was “not rosy” in Venezuela and Argentina, but both countries showed a higher confidence level of 72 each, up five points from their score in the previous quarter. “In February, Venezuelans still might have been hopeful about potential change,” Dahlhoff ventured. She noted that as a quarterly survey, it is “a snapshot in time,” adding that she would closely watch the score for Latin America in the next quarter.

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