Slowdown in Consumer Spending in 2013 Possible, Says Economist

NEW YORK — Consumer spending has increased in the third quarter, yet a slowdown in 2013 is probable, said the chief economist at Comerica Bank last Thursday afternoon.

“Consumer spending accounted for 71% of U.S. GDP in the second quarter of 2012, so it is vitally important to the overall U.S. economy. As we close out the third quarter, we are getting indications that there has been an acceleration in consumer spending through Q3, allowing at least a temporary decoupling of overall U.S. economic growth from the deepening recession in Europe and cooler growth in Asia,” said Robert Dye, chief economist at Comerica Bank. However, this recent burst in consumer spending is neither typical of what has happened in the economy over the past four years nor is it expected to continue.

According to a poll by Gallup, a global research consultancy, consumer spending has remained relatively flat from 2008 to 2012, with consumer spending being an average $69 per day per head of population for June 2012.

“Over the last couple years, the data is consistent with our country certainly recovering from the depths of the recession, but by no means enjoying a robust rebound,” said Allan Budelman, managing partner at Emerald Asset Advisors.

The general weakness in the recovery manifests itself in the recent announcement from global luxury brand, Burberry, of expectations of low revenue by the year’s end.

“You could argue that the persistent uncertainty in the global economy has caused all consumers – from the poor to the wealthy – to tighten their purse strings.  In this scenario, it is not a surprise at all a company like Burberry would be seeing softness from their consumers,” said Budelman.

Consumers spending more on lower-end brands, rather than on luxury brands, indicates that the economy is far from healthy. “Given the record low volumes through August and September, I would say that the economy will get worse before it gets better. Burberry is an expensive product and I believe consumers are looking to spend their money on cheaper goods at the moment,” said Ryan Sheehan, an equity sales trader for the ConvergEx Group.

Budelman affirms that consumers are spending on more affordable brands, in order to make ends meet. “More than ever, consumers are evaluating products on a price to value proposition basis. Is it worth paying twice as much for Bounty paper towels versus the generic store brand? Is the supermarket’s generic ‘mac-n-cheese’ as good as Kraft’s at half the price?” asked Budelman.

As 2013 approaches, Dye predicts consumer spending may decrease, further confirming the fragile state of the economy. “The acceleration [in] consumer spending that we have seen in preliminary third quarter data is at risk as we turn the corner into 2013. If we see declining real disposable income as a result of the Fiscal Cliff, then consumer spending will suffer in early 2013,” warned Dye.

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About Jessica Summers

My name is Jessica Summers. I graduated as valedictorian from Marymount Manhattan College in 2012 with a B.A. in Communications and minors in Journalism and Political Science. During college, I spent a summer abroad studying at Oxford University and also held internships at CNN International, CNBC Business News, and WABC-TV, among other news organizations and media outlets. I am currently a graduate student at New York University’s Business and Economic Reporting program. I am an aspiring broadcast journalist, especially interested in covering the world of business and finance.
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