Consumer confidence: -25

Welcome to issue 3 of Retail By Numbers

Every 2 weeks, I'm exploring the key trends and themes that are shaping the retail industry. Each issue spotlights a specific number, metric, or data point which has provoked new thoughts for me, and I hope will do the same for you too.

With peak trading rapidly approaching, let's consider how confident customers are feeling about the future.

What's the number

-25

This is the latest read on UK consumer confidence, according to GfK - An NIQ Company 's monthly tracker.

Whilst this is a widely used and recognised number, it's important to understand what it really means and what it includes. The metric is based on how 2002 consumers are feeling about their personal finances and the general economic understanding of the past year and the upcoming 12 months. GfK have been tracking for nearly 50 years now so there is a strong historical data set.

Overall, it's an assessment of how optimistic people feel about the future, from a financial perspective, and therefore a great indicator of people's propensity to spend. The more positive the number is, the stronger the outlook.

The table below shows the 5 factors building into the overall index.

Read more about the latest Consumer Confidence results from GfK.

Diving deeper

On the face of it, -25 might not seem particularly positive, so let's explore a little further to assess if this is good news or bad.

How consumer confidence has changed over time

The first factor to consider is that consumer confidence is regularly below zero. Take a look at the last 25 years of data. The blue lines show positive numbers and the yellow shows the negatives. Approximately 80% of the time, we see negative consumer confidence, and the minus numbers are considerably more negative than the positive numbers are positive. Perhaps this suggests that the UK consumer is generally grumpy about the outlook!

We can also see that consumer confidence is recovering from the all-time low experienced just a year ago, in September 2022, where the metric reached -49 based on the depth of the perceived cost of living crisis.

The most recent data shows a 5-point uplift and GFK's Joe Staton says "while the financial pulse of the nation is still weak, these signs of optimism are welcome during this challenging time for consumers across the UK."

So, as we start trading in September, consumers, on the whole, are feeling more positive and therefore should be more ready to spend.

But if this is how UK consumers are feeling, how does this compare to other countries?

How the UK consumer feels relative to the rest of the world

The GfK measure tracks the UK consumers, but I'd like to switch to take a temperature check on other countries.

This data from OECD ( ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT ) has been normalised to 100, so readings above 100 show confidence and numbers below 100 suggest nervousness. It shows the UK (red line) against the G7 countries (minus Canada, as the data is not available) (grey line), the EU (green line) and the average of the 37 economies that form the OECD (blue line).

I've intentionally coloured the specific countries all grey for simplicity but if you'd like the data, please let me know.

The UK broadly follows the shape of similar countries, although you could argue it's become more volatile in the last couple of years. UK consumers felt ecstatic after the Covid pandemic but have been more depressed due to the cost of living crisis. It would be easy to suggest this is more Brexit-related, which is possible, although a similar pattern can be seen back in the 2008 financial crisis, where UK consumers felt negative but recovered quickly. Perhaps the UK culture is more charged to feel high highs and low lows. I'd probably suggest that's a whole other story although if you have views or expert opinion about that, I'd love to hear in the comments!

Global events clearly play a part in consumer confidence (oddly with the exception of 9/11) and the uncertainty means that there will always be an element of the unknown and that in-depth trend analysis has little value - there is just such a huge unpredictable and unknown force at play!

But if this is how consumers are feeling, what about businesses?

How business confidence compares

Let's return to using GfK's measure of consumer confidence and add in the CBI (Confederation of British Industry) business confidence measure, covering all industries.

We can see business confidence (black line) is soaring after the cost of living crisis and largely follows a similar trend to consumer confidence (blue line). Essentially, when the economy is going well, everything feels optimistic - which makes sense.

Finally, it's critical to recognise that UK consumers are not a single entity and will feel differently.

How confidence varies across age groups and socio-economic groups

To understand this, let's consider 普华永道 's Consumer Sentiment Survey July update.

This insight reveals that under-25s remain the most positive group at present which makes sense given they've been less exposed to the full impact of inflation and the cost of living challenges.

Meanwhile, 55-64s felt the least positive age group, although they're feeling more positive than the last measure. In fact, all working age groups have seen boosts in recent months, which could be down to the widespread salary reviews to help people manage personal finances as inflation soared.

Older consumers have felt more positive and this is in recognition that their savings and pensions have been boosted by inflation, which has helped protect them from rising costs.

Meanwhile, PWC found that the least affluent socio-economic groups feel the most pessimistic about personal finances but have also experienced the greatest boosts in consumer sentiment in recent months. This is further reflective of the economic situation helping the rich get richer and seeing the poor getting poorer. In fact, the PWC data showed that the most well-off are the most positive that they've been for 2+ years.

What's the bottom line

Right now, consumer confidence is increasing following the anxiety and uncertainty of the last couple of years. This is great news for retailers as it suggests customers will be ready to spend in the build-up to Christmas.

It could be a bumper Christmas for consumers after a few odd years (2022 marred by the cost of living crisis, 2020 and 2021 overshadowed by Covid) and if this is the case, the retail industry will be a major beneficiary too.

However, this relies of a positive shopping experience. Yes, customers are ready to buy, but they'll be looking for positive experiences or will be ready to switch and take their money elsewhere. Fair prices, good availability, friendly service and simplicity are the essential elements to ensure a great customer experience.

It's also important to consider and recognise how different consumer groups are feeling. Fortunately, most are feeling the same positive impacts (or at least less negative!) and the retail industry should help add excitement in the run-up to peak trading and help keep the tills ringing.

Join the conversation

Thanks for reading and now I’m keen to understand your thoughts and reflections. What would you add? What would you love to know?

Share your thoughts in the comments, or send me a private message.

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