By Daniel Hunter
Deloitte’s latest Consumer Tracker shows signs of life in the consumer economy. Sentiment about disposable income rose by nine points in the first quarter of 2013, from -40% to -31%, in comparison to the same period last year.
This is the most optimistic consumers have felt about the level of cash they have available since the Tracker began in 2011. However, despite this improvement, disposable income remains under pressure and this continues to be consumers’ main area of concern.
Improved sentiment can be seen across several other measures affecting consumers’ ability to spend in Q1 2013. Consumers’ confidence regarding debt levels and job security both improved by three points, compared with the previous quarter (-9% vs. -12%). Concern about personal debt has nearly halved since the Tracker began.
Whilst sentiment about disposable income has improved, discretionary spending remains subdued with only moderate increases in some categories. Between January and March, consumers were less likely to cut back on clothing and footwear (-17% vs. -23%) and major household appliances (-8% vs. -12%), in comparison to the same period last year. Rising energy prices have contributed to the increase in the net proportion of consumers who have spent more on utilities in the last quarter (48%), compared to Q1 2012 (43%).
“The macroeconomic environment for consumers is beginning to improve, albeit very slowly. Employment levels are up compared to last year and credit availability has improved," Ian Stewart, chief economist at Deloitte explained.
"Mortgages have become increasingly available, in part as a result of the Bank of England’s Funding for Lending and the Government’s First Buy and Help to Buy schemes. Inflation has fallen sharply from the peaks seen in late 2011 and this has lent some support to consumer spending power.”
Deloitte’s recent CFO Survey shows that sentiment in the corporate sector continued to improve in the first quarter. The perception of macro and financial uncertainty dropped to the lowest level since Q1 2011.
“One factor holding back consumer discretionary spending is the still elevated level of inflation and concerns about the pace of price rises over the coming months. Certainly, the Bank of England anticipates further upward pressure on inflation through to the middle of this year," Stewart continued.
As a result, defensive spending strategies remain prevalent. A fifth of consumers spent less in the last quarter, using tactics such as bargain hunting and trading down.
“The continued rise in discount shopping shows consumers have focused on rebuilding their balance sheets and have developed strategies for making their money go further," Ben Perkins, head of consumer business research at Deloitte said.
"Technology advancements have armed shoppers with more data to help them find the best deal. They are better educated and savvier than ever when deciding where to spend their money. We have also seen a polarisation of the consumer market, with growth in the value and luxury sectors. Often the same consumers are shopping at both ends of the spectrum demonstrating the importance they place not only on price but also on the retail experience.”
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