Consumer Confidence Holds Steady Midway through Q2

As we wait for the full diagnosis of April retail sales, industry performance throughout the first several months of 2014 has displayed modest but promising signs of growth. As consumers began to emerge from the winter thaw, pent-up demand prompted a full 1.1 percent growth in March sales—the largest monthly gain since September 2012, and retailers are cautiously optimistic that this positive momentum will continue to push growth throughout the Spring and into Summer. At the same time, consumer confidence levels, another key indicator of economic health, grew to 83.9 on the Conference Board index in March, their highest mark since January 2008, and remained relatively stable at 82.3 in April.

Overall, while there remain large uncertainties around healthcare reform and political wrangling for the upcoming midterm elections, the climate in Washington has settled considerably over the last several months, providing a greater sense of stability which has in turn helped ease the worries of consumers. The robust retail sales in March point to a rebound in demand after a lackluster beginning to Q1, which may very well prompt the Fed to adhere to its plans for gradual tapering in asset purchases. Additionally, the central banks have promised to maintain low interest rates until both unemployment and inflation have fallen further.

After better-than-expected job gains in February and March, the U.S. added 288,000 new jobs in April, the highest number in two years, and the unemployment rate fell from 6.7 percent in March to 6.3 percent in April, its lowest rate since September 2008. At the same time, the Conference Board survey found that the proportion of consumers who said jobs would become more plentiful in the next six months rose to its highest since January, while the share expecting their incomes to rise increased to an eight-month high in April. Overall, progress around unemployment has been stubbornly slow for the past two years, but this gradual headway should continue to boost confidence levels incrementally.

Consumers are less confident around the housing market and energy costs. While housing prices continue their rise alongside growing mortgage rates, market momentum will largely depend on further credit easing and job growth. Meanwhile, high gasoline prices are pressing consumers at the pump, which could pinch discretionary spending and adversely affect auto sales in the weeks ahead.

On the whole, consumers stand on firm footing midway through Q2, which should hopefully continue to propel sales for retailers as we approach the Summer and back-to-school seasons. While consumer confidence appears to be stabilizing, retailers still have a number of other pressing concerns and risks with which they need to grapple. In the weeks ahead, stay tuned to the blog as we provide an in-depth analysis of these risks in our 8th annual Retail Risk Factor Report.