Consumers were feeling a little better headed into Christmas — but the trick is going to be keeping the good vibes going into 2022 with Omicron and inflation looming.
The Conference Board’s closely watched Consumer Confidence Index rose to 115.8 this month, up from November’s reading of 111.9, which was revised upward.
The Index took the temperature of shoppers through Dec. 16, catching the early reports and the run up in the Omicron variant, but not the dramatic swing upward in COVID-19 cases in the U.S. just before the holiday.
Lynn Franco, senior director of economic indicators at The Conference Board, said she is optimistic headed into 2022, but watchful for how the consumer will react.
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“The in-person activities could very well be impacted as this unfolds,” Franco said of the anticipated wave of Omicron infections. “On top of this, you get to this layer of inflation as well. Both of these components could impact the overall economy. We expect a bit of softness in the first quarter.”
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But that softness, or just natural slowdown after holiday sales, could feel like a big step back for retailers that have done surprisingly well this year, racking up sales gains despite the pandemic and its attendant supply chain back ups.
In addition to any Omicron wariness, consumers are also operating without the government stimulus that fueled spending earlier this year. And after almost two years of pandemic, any pent-up demand could be spent.
Franco said consumer spending would “transition to sustainable rates,” moving to growth of 2.5 percent in the first quarter from the explosive 6.5 percent growth projected for this quarter.
While the first COVID-19 lockdowns were jarring from every angle, Franco said consumers have learned to take new waves of cases in stride, for instance, modulating their behavior for the increase of cases that came with the Delta variant. And she expects the same to be true for Omicron.
“The economy has opened up,” she said. “Restrictions have eased and consumers have held up relatively well. But we do see a decline in periods where there’s some sort of variant that’s taken hold and we do see spending impacted because of in person services.”
Consultant Katie Thomas, who leads Kearney’s Global Consumer Institute, said it’s getting harder to predict consumer behavior — in part because it’s getting harder to know where anything stands.
“We’ve been living in this uncertainty for so long,” Thomas said. “I still don’t know what life will look like three months from now. It’s one step forward, two steps back. Consumers are spending still on more or less what they know they will use or what they will need.
“We can’t predict what’s going to happen with the rules of the virus, which also seem to be changing every single day,” she said.
While consumers have proven to be resilient this year, they are also changed and in lasting ways that are still playing out.
Marketing guru Martin Lindstrom said many shoppers are suffering from a “lack of transformations” in their lives, such as a big change of scene with a holiday or the day-to-day shifts between home and work.
More transformations lead to a perception that time is moving slower. Instead, people working from home are living “very monotone” where “one day’s blending into another,” he said.
Lindstrom, author most recently of “The Ministry of Common Sense: How to Eliminate Bureaucratic Red Tape, Bad Excuses and Corporate BS,” works at the intersection of biology and consumer habits said people are exhausted and need to reset.
But for now it looks like Omicron is going to reinforce changes the consumers made during the pandemic so far with shoppers gravitating toward “tactile” purchases to compensate for their isolation, while also searching for purpose.
It’s a suite of changes that has consumers moving to the poles, buying more private label and spending as little as possible on every day items while splurging on that bigger ticket purchase that “gives you an experience or memory or is a long-term investment,” Lindstrom said.
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