Inflation and supply chain disruptions were key factors weighing on consumer sentiment around economic outlook and overall optimism at the end of 2021, and they persist today.
High demand for goods combined with supply chain issues drove inflation, sending it to a 39-year high of 7% in December – the fastest rise since 1982. This is likely the reason for decreased satisfaction with the state of the economy, which fell to 33% in 2022, a significant drop from right before the start of the pandemic in 2020, according to the latest Mood of the Nation survey by Gallup.
Even as incomes rose and financial situations improved for many Americans, 27% of consumers said they ended 2021 in a worse financial position than when the year began, and 37% said it was harder to handle their finances than in previous years, according to Morning Consult.
OUT WITH THE GOODS, IN WITH THE SERVICES
Consumers responded to the pandemic with a remarkable shift from spending on services to spending on goods. Now, the opposite seems to be unfolding, according to economists.
People shopped more online during the last two years and purchasing patterns changed. We bought a lot of stuff during the pandemic with spending fueled by a combination of time on our hands, job growth and increased incomes, and stimulus disbursements. Purchases were made for the home on items to accommodate remote work and school situations such as furniture and computers, and home gym equipment. Consumers tackled home improvement projects and enhanced their entertainment options with items such as pools and electronics.
Today, as supply chain issues make some goods hard to come by – and the fact that we basically bought everything during the last two years anyway – people are now returning to spending their money on travel, dining out and experiences. Vaccines and drops in COVID cases are amplifying the return to services.
WHAT’S YOUR ECONOMIC PAIN THRESHOLD?
Have you priced a used car recently? At the end of 2021, the average used car price was nearly $30,000, up 29% from 2020.
Consumers may be ready to hit the road and pay for experiences, but many are continuing to hold off on large purchases. This was the case in September when we posed the question and it seems that while we will make concessions for some items, there is still a threshold on what we will pay for others.
Although consumers are anticipating a higher price tag on things like vacations, this doesn’t seem to be discouraging them from making travel plans for 2022, according to Morning Consult’s U.S. Consumer Spending Report.
“Pent-up demand for travel and experiences is higher than ever,” said Marc Ehrhardt, president of The Ehrhardt Group. “The stage was set last summer for increased travel but was hampered by Delta and then Omicron. Consumers seem to be moving ahead with their plans for this year and not letting the cost or the pandemic impact their vacations.”
Another category where consumers are feeling the pressures of the current economic climate is groceries. 47% of adults who shopped for food reported difficulty finding certain items in January, up from 41% in November. They also noticed a significant price increase at the cash register. Consumers are preparing for grocery bills to continue to rise throughout the year and are willing to pay the price – whatever it may be, to get the items they want.
“The price of staple grocery items such as meat has gone up considerably during the last several months, but at the end of the day, I want to buy steaks and I will buy them regardless of the cost,” said Traci Howerton, senior account executive at The Ehrhardt Group.
While some are holding off on making purchases due to inflated prices, others are spending anyway because they want what they want and are willing to endure the financial implications. Throw in the current supply chain and worker shortage constraints, and you have a textbook case of supply and demand: Strong consumer demand and short supply are driving up prices for cars, homes, groceries and gas.
CONFIDENCE HOLDING STEADY
Consumer sentiment regarding the pandemic did not take a dip with Omicron as it had with past COVID-19 variants, according to Morning Consult’s February Economic Outlook Report. This can likely be attributed to the overall pandemic fatigue many people are feeling and the desire to get back to a semblance of normalcy.
Twelve years ago, we spent 24 minutes per day on our phones. Today, it’s 4 hours and 23 minutes.
Source: Scott Galloway
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HOW DID WE FIND THIS STUFF OUT?
The Gulf South Index is a cooperative project between The Ehrhardt Group, a public relations, content, issues and crisis firm, and Causeway Solutions, a nationally recognized research and data analysis company, that are both based in the Gulf South.
The Index delves into hundreds of thousands of data points to paint a better picture of how the millions of people living in Louisiana, Mississippi, Alabama and the Florida panhandle are going about their lives. We want to find out more about how we make decisions, from what we are buying and how we are getting our news to where we plan to travel.
We cannot comment on the methodology of the surveys and research we did not conduct, which is why we do our best to link to the source articles or studies that we share here.