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Confident predictions that GDP would increase in Q3 may have helped buoy consumer confidence. The predictions were wrong, though, and the bad news could play a role in damping down shoppers' optimism over the coming months.
The latest GDP figures show that this recession hasn’t lost the power to surprise. The 0.4% contraction meant that for the first time since records began, GDP had fallen for six consecutive quarters.
Despite the unexpected fall, there are a number of signs that consumers are in recovery mode. House prices have risen – albeit on the back of extremely constricted supply. From my own experience, friends who are looking to move house have had no problems finding a buyer – but they’re struggling to find somewhere to move to, so quickly is stock moving.
Often, the minor details can give a feel for the consumer mentality. Mintel’s forthcoming report on the bottled water market, for example, shows that while sales are still falling, the rate of decline has slowed – consumers seem to be happier to spend money on life’s little luxuries than they were towards the start of the year.
Are “things getting better”, or are they just “not as bad as I feared”?
Reflecting these early indicators, consumer confidence measures have seen sharp rises over the last few months. On the surface, there seems to be a genuine spirit of optimism. My pet theory, though, is that this is more a case of people realising that things aren’t as bad as were initially predicted, rather than a fundamental shift in consumers’ mentality.
And this rebound notwithstanding, many are still in recession mode. The savings ratio is up, and in July, outstanding credit balances actually fell – classic indications that people are trying to get their finances in order, ‘just in case’. And the unexpected fall in GDP is unlikely to help the nascent recovery in consumer confidence, even if the news took second billing to Nick Griffin’s appearance on Question Time.
Conclusion? It’s still not time to switch the marketing message from ‘taking care of the pennies’ to ‘spend, spend, spend’. Mintel has long been saying that the recovery will, for many people, be more uncomfortable than the recession. What the latest GDP figures show is that it’s going to be another three months before we can even start to talk about just how uncomfortable this recovery is going to be.
