Jigsaw Economics (Craig Douglass On Consumers)

Craig Douglass

It’s a puzzlement. Over the past 12 months, most economists around the country have predicted major growth in consumer spending because of the decline in gasoline prices. It seemed logical to us. In fact, we have commented in this space on such things as the “gas price dividend” and on research showing where consumers have spent their increased discretionary income because of lower costs at the pump.

The only problem is, consumers didn’t get the memo. Their collective spending, which makes up roughly 70 percent of the U.S. economy, has been flat, keeping a slow-growing economy further throttled down. Someone left the parking brake on.

Scrambling to make sense of the lack of consumer spending, many have said the relentless first-quarter winter kept shoppers at bay (we thought weather corresponded to seasons, not fiscal quarters). The weather-related argument seems logical. But if true, it should also have created pent-up demand that should be set free as inclement turns to clement.

And so it seems to be.

In Arkansas, sales tax collections — which reflect retail spending — have impressively rebounded. That fact, coupled with still-moderate gas prices, bodes well for the remaining spring and upcoming summer, which begins at 11:39 a.m. Sunday, June 21. Come on solstice!

Lower gas prices can still be an economic driver. The national average price of a gallon of regular is between $2.75 and $2.80, compared with $3.75 this time a year ago. Oil watchers continue to predict less volatility in gas prices, with prices remaining fairly consistent for the balance of the year. Some have even predicted that the price per barrel, which is averaging around $59, may go to $45 by October. Stay tuned.

While gas prices have a general impact on the overall economy, they have a direct impact on retail sales at convenience stores, where most of Arkansas’ motorists purchase fuel. As an example, if we take a look at national packaged beverage sales at C-stores during the January-March period, we find an increase over last year of 3 percent. (Research shows the Mountain Dew brands are leading the way.) That increase is coming from folks filling their tanks and going inside to make additional purchases (even in horrible winter weather). They are purchasing lottery tickets, too, as the Arkansas Scholarship Lottery has reported a slight increase in scratch-off ticket sales. No wonder: Lottery sales around the country directly correspond to daily fluctuations in gas prices, so these sales should be increasing.

Comprehensive daily consumer spending is trackable, too. The Gallup organization has for some time measured the daily average dollar amount Americans report spending or charging at retail (not including, of course, the purchase of homes, motor vehicles or normal household expenses). Respondents to the daily Gallup poll are asked to report on “yesterday’s” spending. Results are based on telephone interviews with approximately 1,500 national adults, calling an equal mix of random landline and mobile phone numbers.

In March, for instance, average daily spending was $87, up from $82 in February. Prior to the Great Recession, average daily spending was around $118, dipping to $59 in the first quarter of 2009, then slowly rising to more than $90 in 2014, when gasoline prices first started falling.

Retail spending is not the only measure to consider. Significant purchases, like cars and trucks, also point to either the pent-up demand caused by poor weather or increases in job creation and wages — or both. New car sales among all major manufacturers rose between 6 and 7 percent in April, compared with April 2014. Financing and pricing deals are moving vehicles off the lot, with low-interest loans and 60-month-plus payoffs as further incentives.

Well, you get the idea. It’s a mixed bag, with potential for major improvement. What we see is an opportunity for retailers to continue encouraging consumer participation in the economy by increasing promotions, selective discounting, seasonal markdowns, cross-selling and daily consumer interaction through social media, primarily on mobile platforms. (“My store has got to fit in your pocket,” one retailer told us.)

The puzzle will work itself out. And one thing is clear, consumers hold all the pieces.

Craig Douglass is an advertising agency owner and marketing and research consultant. He is president of Craig Douglass Communications Inc. of Little Rock. Email him at Craig@CraigDouglass.com.