A front page article in today's Globe and Mail by Tavia Grant on why retail sales seem to be strong this year despite wage stagnation and vacillating consumer confidence included some "sage" words from yours truly! :)
The questions Tavia asked are really good ones and are at the crux of much of what I research. Part of the explanation could be attributed to the pent-up demand effect, where even if consumers are financially limited and they try their best to resist the urge to spend and be frugal, when there are cues from the environment, like ubiquitous reminders of the rapidly approaching holiday season, or when there are stressors or pressures, due to worry about one's job or the economy for example, theory from psychology and consumer behaviour posits that people may be even more susceptible to the temptation to spend even when there is uncertainty that the cash is available to pay for these purchases. So while we might expect that a dip in consumer confidence might dampen spending because people should be preparing for what they expect might be harder times, in fact it can be difficult and stressful for people to cope over an extended period of time with that fear and trepidation. In addition, because we have certain cultural expectations of what an ideal holiday is and often it is important to at least provide a happy experience for loved ones it makes sense that people would muster up any surplus, whether from a savings account or a credit card, in order to make the best of hard times. This can result in surges in spending even during declines in consumer sentiment. In a nutshell it is still difficult for us to predict how consumer confidence impacts consumer spending given the idiosyncrasies of how we psychologically consumer when under stress. There are many other factors that can modulate that impact. I think that some of us react to the uncertainty in the environment by looking for ways to feel confident, in control and successful and interestingly the process of shopping to procure consumption items especially for our households and families is very satisfying, very rewarding.
The questions Tavia asked are really good ones and are at the crux of much of what I research. Part of the explanation could be attributed to the pent-up demand effect, where even if consumers are financially limited and they try their best to resist the urge to spend and be frugal, when there are cues from the environment, like ubiquitous reminders of the rapidly approaching holiday season, or when there are stressors or pressures, due to worry about one's job or the economy for example, theory from psychology and consumer behaviour posits that people may be even more susceptible to the temptation to spend even when there is uncertainty that the cash is available to pay for these purchases. So while we might expect that a dip in consumer confidence might dampen spending because people should be preparing for what they expect might be harder times, in fact it can be difficult and stressful for people to cope over an extended period of time with that fear and trepidation. In addition, because we have certain cultural expectations of what an ideal holiday is and often it is important to at least provide a happy experience for loved ones it makes sense that people would muster up any surplus, whether from a savings account or a credit card, in order to make the best of hard times. This can result in surges in spending even during declines in consumer sentiment. In a nutshell it is still difficult for us to predict how consumer confidence impacts consumer spending given the idiosyncrasies of how we psychologically consumer when under stress. There are many other factors that can modulate that impact. I think that some of us react to the uncertainty in the environment by looking for ways to feel confident, in control and successful and interestingly the process of shopping to procure consumption items especially for our households and families is very satisfying, very rewarding.
