MONEY MATTERS: Consumer Mood Still Good

Consumer confidence is the basic engine of the economy. And the latest update tells us that the engine is running pretty strong.

The Conference Board’s latest read on consumer confidence came in at a 12-month high, fueled by a recent bout of strength in jobs and the stock market.

That decidedly upbeat mood came as a surprise to many, seeming to fly in the face of rising energy costs and continued weakness in housing, with leading housing index Case Schiller/S&P showing prices dipping to a fresh 9-year low.

But for the time being, consumers aren’t letting higher energy costs and falling home values stop them from spending.

That was on display during Q4 earnings season, with retailers looking exceptionally strong with a 26% increase in earnings from last quarter.

But beyond actual winners and losers, there were and a number of consumer trends in play that contain valuable information for any small-business owner.

The Rich Will Spend

One is that the rich will continue to spend. Even though we have seen unprecedented volatility in the global markets over the last few years, truly rich people aren’t very affected by it all. Wealthy consumers have the kind of cash flow to support big discretionary spending even if the stock market dips and jobs are down.

Coach, Inc. (COH) has been at the front end of that curve, recently hitting a new 52-week high as high-end consumers continue to drop big bucks on hand bags. Lululemon Athletica, Inc. (LULU), the specialized yoga apparelist, has also been strong as fashionable health enthusiasts splurge on $100 pants.

That means if you have the right product, your customers will find a way to get it. Brand status and customer loyalty stand out in this category.

Value is Still Cool

But it isn’t all about high fashion. Economic uncertainty has kept value in play too. Even though the unemployment rate has dropped over the last year, on an absolute basis, it’s still at historically high levels. And that has been the driving force behind consumers remaining focused on saving a few bucks.

Companies like Dollar Tree (DLTR) and Costco Inc. (COST) have capitalized on the trend, both seeing huge sales gains and store growth over the last 3 years.

Threats Remain

But in spite of those strong results and the upward trend, there are still a number of threats to the consumer psyche.

Like the cost of gasoline. Historically, gasoline prices tend to rise the most in spring and summer during peak consumption. At what point do we see any consumption destruction because of what boils down to a large energy tax?

Jobs will continue to be important too. We’ve seen some nice gains this year, but that could also largely be seasonal as companies hire new employees early in the year and then take a breather going into summer.

Stocks will also factor into the equation. We’ve seen an incredible run in the stock market over the last four month, up 22% from its late 2011 low. A pullback in the stock market is never good for confidence.

And politics also have to be considered. The global political scene is hot right now. Any kind of flare up could send energy prices sky rocketing and put a huge dent in morale.

The Take Away

So what’s the take away for a small-business owner?

Having a bigger-picture view of the economy in general and your sector in specific can be an incredibly valuable tool for making business management decisions. That includes critical areas like capital spending, forecasting and monitoring inventory levels.

It can also shape your sales and marketing activities, with a view on the macro picture helping small-business owners decide if now is the time to be aggressive with a new campaign or conservative in order to save more cash.

Either way, operating from a position of knowledge only stands to help your business.

Moving forward, we will be providing regular updates on the strength of the overall economy and the health of the consumer, so be sure to check back in for the latest news on how these two very key issues are affecting your business.

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on RetailMinded.com as well as in each issue of Retail Minded Magazine.