Will anything stop Americans from shopping?
A University of Michigan professor believes even a slowdown in the housing market and other potential economic woes will not keep Americans out of the stores in early 2007, citing data that shows that people are growing more satisfied with the goods and services they purchase.
“It turns out — and I’m not saying this is necessarily good — for better or worse, the consumer seems to find the means to spend,” said Claes Fornell, a professor of business at the University of Michigan in Ann Arbor, and head of the American Customer Satisfaction Index.
Fornell cites other factors that could contribute to consumer spending, such as relatively low unemployment. But his optimism about consumer spending growth is mainly drawn from a quarterly index the university compiles based on consumer satisfaction with goods and services.
In the last three months of 2006, the overall index hit an all-time high of 74.9, on a scale of 100, up nearly 2 percent from the same time last year. That is also the highest score the scale has hit since it was first measured in 1994, the university said in results released Tuesday.
Fornell sees this as evidence that people will keep finding the means to satisfy their buying urges, even if other factors — such as lower home values — might seem to reduce the amount of money available for such spending sprees.
“I think, in economics, we have probably looked too much towards the conventional ways of financing consumer spending,” he said.
Still, Fornell did note that consumers appear to be quite price-conscious. In studies past, Fornell said consumers have usually said they were satisfied with retailers primarily because of improvements in product quality and customer service. But this time around, he said consumers were especially satisfied when they though they were getting good value for their money from the retailer.
“It’s not that they’re looking out for a bargain, but they think they’re getting a bargain, which of course makes the whole thing attractive,” Fornell said.
Companies that rated especially high during the fourth quarter of 2006 included discounting club store Costco, which scored an 81, online retailer Amazon.com, which recorded a score of 87, and the Web-based bookseller barnesandnoble.com, which scored an 88. Wal-Mart, the nation’s largest discounter, saw its rating unchanged from last year at 72.
In addition to major retailers, the fourth-quarter study also looked at banks, insurance providers, online auction houses, brokerages and travel Web sites. The survey measures different industries each quarter.
The most recent results were based on a phone survey of about 15,000 people conducted in the fourth quarter of 2006.
While Fornell thinks the results point to continued strong consumer spending in the first few months of 2007, other economists are less optimistic.
Bill Hampel, chief economist for Credit Union National Association, is expecting consumer spending to face headwinds this year, primarily because a slowdown in the housing market may prompt people to reevaluate how much money they feel like they have to throw around.
Over the last few years, Hampel noted, Americans may have felt more freedom to spend money because they were seeing their wealth increase as the value of their homes increased significantly. But with the housing market slowing, Hampel said many people may feel like their net worth is declining and be reluctant to take on more debt.
“We think that spending is going to have headwinds for the rest of this year,” he said. “The consumer’s balance sheet is in pretty lousy shape.”
Hampel isn’t expecting a drastic slowdown in spending, but he does think it will taper off gradually, especially in markets where the housing market slump is more pronounced.
“The weaker that home prices are … the more some consumers are going to say, ‘Well, it’s been a good ride, but I guess I have to cut back my spending now,’” he said.