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When it comes to the state of the consumer, the contradictions continued in November and December.
Consumer spending slowed down, even as prices fell. New home sales ticked up, while existing home sales fell. Manufacturers cut back orders, even as consumer sentiment rose to end the year.
Here’s a look at the flurry of economic data released for November and December to end the month, and what it says about the economy and the consumer:
Consumer spending increased 0.1% over October, down from a 0.9% increase the month prior, according to the latest Personal Income Expenditures report. This slowdown came as the Bureau of Economic Analysis showed disposable income rose 0.4%, compared with 0.7% the prior month. Meanwhile, personal savings as a percentage of disposable income was 2.4%, up slightly from 2.2% the month prior.
What it says: A decrease in spending hitting just as the holidays arrive is likely to bring cause for concern, even as retailers like Nike reported record Black Friday-Cyber Monday spending this week. To be sure, there are a number of factors at play, as the data is affected by falling gas prices and rising services inflation, since the spending report is not adjusted for price changes. Nevertheless, the pullback of growth in consumer spending was underscored by a decrease in spending on goods of $59.5 billion, which was a sharp turnaround from last month’s $71.8 billion increase. Following November retail sales data that showed uneven spending, holiday season results will be closely watched for any signs of softening spending.
Inflation increased 5.5% year-over-year and just 0.1% month-over-month, according to the PCE Price Index. This marked a deceleration from October, when prices rose 6.1%. The inflation rate excluding food and energy rose 4.7% from a year ago, which was also down from 5% in October, but roughly on par with the 4.7%-4.9% range from the summer.
What it says: The annual number will add to evidence that inflation is cooling. The PCE, which is the price gauge watched most closely by the Federal Reserve, has followed the Consumer Price Index in showing slower growth over the last two months. It’s still well above the Fed’s goal of 2%, but evidence of progress is beginning to emerge. Nevertheless, Fed officials have said interest rate hikes are likely to continue, even as they pulled back the size of the increase to 0.5% in December.
Durable goods orders decreased 2.1% on a monthly basis in November, according to the US Commerce Department. This was a marked turnaround following a 0.7% increase in October. The decrease, which was the first in four months, was driven by a decline in orders of transportation equipment. Durable goods describe orders from manufacturers for products that are designed to last more than three years.
What it says: This is a notable slowdown in activity. But keep this in mind: The durable goods metric is a broad-based measure of orders, covering everything from military equipment to washing machines. As such, any movement here is typically interpreted as an indicator of the economy as a whole, rather than a direct sign for consumer goods. Still, there are some consumer products included such as cars and appliances, and any slowdown in the economy could eventually affect consumers, as well. This is especially notable after retail sales data pointed to a pullback from larger-ticket purchases. People may keep spending amid inflation, but it is the bigger-discretionary purchases that take a backseat when food and fuel are more expensive.
Consumer sentiment for December rose 5% above November to end the year on a slightly sunnier note, according to a final reading from the University of Michigan Survey of Consumers. While sentiment is 15% below its level of a year ago, the recent month’s data still showed an improved outlook on inflation. Notably, short-run inflation expectations improved from 4.9% to 4.4% over the month, which was the lowest reading in 18 months.
What it says: While spending was down for November, the sentiment numbers for the following month show there’s hope for a better December, which doubles as the critical holiday shopping month for retailers. The data suggests the slowing growth of inflation is also beginning to filter to consumers, but it remains a volatile environment heading into 2023.
“While the sizable decline in short-run inflation expectations may be welcome news, consumers continued to exhibit substantial uncertainty over the future path of prices,” wrote UMich Survey of Consumers Director Joanne Hsu.
Home sales data released last week sent mixed signals:
New home sales were up 5.8% on a monthly basis in November, while falling 15.3% on an annual basis, according to the US housing and commerce departments. The median price for new homes was $471,200, while was down from $493,000 the previous month.
Existing home sales, meanwhile, fell 7.7% on a monthly basis in November, falling for the 10th straight month, according to the National Association of Realtors. The median price for existing homes was $370,700, an increase of 3.5% from November 2021.
What it says: While the new home sales data was likely welcomed, the housing market continues to cool off. This is one area of the economy where the Federal Reserve’s actions to raise interest rates is being felt most immediately, as mortgage rates are directly affected by the more expensive borrowing costs.
"In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020," said NAR Chief Economist Lawrence Yun, in a statement. "The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows."
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On average, customers spend $59 more than the value of their gift card, Fiserv found.
In retail, sales are often measured in goods, whether they are purchased for ourselves or someone else. There are plenty of strategies that brands and retailers use to increase those sales, whether it is marketing, loyalty programs or how that item is presented.
In most cases, these are two different parts of the equation for retailers: The product that is bought and the strategies that lead to the purchase.
That’s what makes the gift card unique.
It is an item you can buy, with a section in the store all its own. Eventually, it leads to the purchase of other goods, so the gift card is leads to a direct sale. Yet it’s also a means to build a retail brand and create incentives that both introduce customers to a store and keep them coming back.
That’s a key takeaway from the 20th Annual U.S. Prepaid Consumer Insights Study from fintech and payments company Fiserv.
At this point, the gift card feels like a staple of the shopping experience. But it is only about 30 years old. In 1994, Blockbuster Video pioneered the sale of cards for gifted purchases directly as a means to combat fraud in paper gift certificates. Since then, they’ve proven to have a multitude of uses that stretch beyond the holidays.
Starbucks and Amazon gift cards are commonly distributed as prizes at team-building events and as pick-me-ups by friends showing they care. In 2022, 60% of consumers said they received a gift card from an employer, according to the Fiserv report. That was a big increase from 32% in 2019. People appreciate the gesture. The survey found that 85% of employees think that gift cards from an employer make for appropriate incentives.
For people looking to show generosity, gift cards can also be a means to stretch dollars. At a time of high inflation, people are looking for deals with their discretionary purchases. Gift card promotions that offer discounts and bonuses are proving particularly popular, the study found. Two-thirds of consumers said promotions can influence them to purchase more, while more than half of consumers took advantage of such an offer in 2022.
Yet the more difficult consumer environment is also having an impact on overall gift card sales. In 2022, the growth of gift card purchases slowed.
“Overall, 56% of U.S. consumers purchased more gift cards in 2022 compared to 2021,” said Tom Niedbalski, VP of gift solutions at Fiserv. “This was a decline from the 73% of consumers who said they bought more gift cards in 2021 than they did in 2020.”
Inflation and less discretionary income were the driving factors for consumers who said they bought fewer gift cards during 2022, as 35% of consumers said inflation was the reason they were purchasing fewer cards.
It's important for brands and retailers to understand why consumers buy gift cards. But it's just as crucial to understand where they can fit in retail strategy. Beyond sales, gift cards can help drive repeat customers, and extend a brand. These tools are particularly valuable at a time when retailers are focused on profitability in a tougher consumer environment.
Fiserv explained four areas in which gift cards are of particular value for brands.The following is directly quoted from Niedbalski:
Improving cash flow and revenue. Gift cards not only drive in-store and online traffic, there is an associated “lift,” or overspend, when a gift card is converted into a sale. On average, customers spend $59 more than the value of their gift card.
Repeat customers. Retailers use gift cards to foster loyalty and customer engagement, ultimately leading to repeat customers. One way we see this play out is through promotions associated with gift card sales. For example: a consumer who buys a $100 gift card for the holidays will receive a $20 bonus card that can be used after January 1 – creating a pre-holiday sale and post-holiday transaction in the New Year.
Branded currency. A gift card places a merchant’s brand directly into the consumer’s wallet, increasing brand awareness and ensuring the merchant’s brand is with the consumer when they are looking to buy.
Year-round marketing. The gift card has grown beyond the traditional holiday season. From birthdays and graduations to anniversaries and babies, gift cards are becoming the most popular way to recognize milestones – giving retailers opportunities to run additional promotions throughout the year.