Shoppers are feeling better — on par with the go-go summer of 2021 if the Consumer Confidence Index is to be believed — but grabbing hold of the good vibes is still proving tricky.
And even if consumers are moving on from their economic fears, a mixed-up world with higher interest rates, still-high core inflation, student loan repayments starting back up and the continuing war in Ukraine could still throw a recessionary monkey wrench into it all.
But for now, shoppers seem ready to celebrate a little given the still-strong job market — whether they do so by spending on goods or services is one of the key questions.
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The Conference Board’s reading of consumer confidence rose to 117 for July, up from 110.1 in June, hitting its highest level since July 2021, when shoppers were waking back up from their pandemic hibernations.
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Both components of the Consumer Confidence Index rose with the Present Situation Index increasing to 160 from 155.3 last month and the Expectations Index jumping to 88.3 from 80 in June. That put the forward-looking Expectations Index well above 80 — the mark that is seen as signaling a recession within the next year.
Dana Peterson, chief economist at The Conference Board, said: “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”
But even though the reading of expectations suggests a recession is further off, the people surveyed were talking up the risks.
“The proportion of consumers saying recession is ‘somewhat’ or ‘very likely’ to occur ticked up in July, contrary to the Expectations Index spiking this month above the threshold of 80,” Peterson said. “Still, recession expectations remained below their recent peak, suggesting fears of a recession have eased relative to earlier this year.”
Even so, the think tank still sees a recession as “likely before yearend.”
Craig Johnson, president of Customer Growth Partners, said some areas are picking up while others slow down as the spending cadence returns to something more normal after the pandemic.
“Think of it as the tide,” Johnson said, where spending trends roll in and then roll back out. “We’re sort of in between. It’s a sea change.”
Johnson pointed to a “megatrend shift from goods to services” with shoppers spending more on services again after shifting to goods during the COVID-19 lockdowns.
He said U.S. consumers devoted 31 percent of their spending to goods in 2019 only to ramp up to 36 percent in 2020 and then recede again to about 34 percent.
“We have a lot of normalization to go,” Johnson said.
People are also choosing carefully just which goods they spend on.
Johnson said the apparel business is flat to up slightly, but that footwear is “very hot.”
“Much of that dough that used to go into apparel — apparel is boring right now — it’s all going into footwear,” he said. “There’s more and more of a fashionization of footwear and people are getting into it more.”
Back-to-school, he said, has started with something “very close to on average” with about 4 percent growth.
“It’s like normal,” Johnson said. “That would be a big victory.”
But returning to normal after enjoying a big post-COVID-19 run-up might not feel like such a victory for some brands.
Take Lulu’s Fashion Lounge Holdings Inc., which targets Millennial and Gen Z women via e-commerce and went public in late 2021.
The Chico, California-based company warned its second-quarter sales would fall by as much as 20.5 percent from a year ago to $104.5 million. Adjusted earnings before interest, taxes, depreciation and amortization are slated to drop as low as $3.4 million after hitting $14.8 million a year ago.
Crystal Landsem, chief executive officer, said, “Top-line demand fell short of our expectations and return rates increased more than anticipated as the quarter progressed, which drove a year-over-year net revenue decline in the second quarter in line with what we observed in the first quarter.…As we expect continued choppiness in consumer demand, macroeconomic uncertainties and elevated return rates, we are withdrawing our full-year 2023 guidance.”
Landsem said the company has a strong balance sheet and is “focused on adapting to changing customer behaviors, closely managing inventory and discretionary expenses, and continuing to drive brand awareness.”
Shares of Lulu’s Fashion fell 6.6 percent to $2.55 on Tuesday as investors tried to gauge whether this was the new normal.