Economists stumped as world dances to new beat

Economists stumped as world dances
I have just been watching CNBC and their take on the latest US job figures. Despite some of the leading business economists putting forward their forecasts, none was close to the 295,000 jobs created in February. Most had expected a weaker figure on the back of a perceived slowdown in growth. At the same time the unemployment rate has fallen to 5.5% with both wage growth and the labour participation rate remaining flat. 
 
Central banks increasingly seem unable to figure out what is happening to western economies as ‘top-down’ hard-data driven models, and their relationships, seem to have broken down.
 
Despite growth returning, inflation remains subdued and the need to raise interest rates continually put back. Major economies are becoming less in sync, with currencies reflecting the shifting sands of economic imbalances creating headaches for global brands.
 
Top-down data flows have created much debate in the UK this week with the publication by the Institute of Fiscal Studies of their analysis of average household incomes in recent years. Such discussion, coming less than 2 months before a general election, has meant all political parties seeking to generate favourable ‘spin’ from the findings.
 
Increasingly over-reliance on hard-data for policy decision making is being questioned in this age of the consumer, given differences between consumers in their attitudes and behaviour. 
 
Living with austerity has brought changes between different consumer segments. Indeed the latest GfK consumer confidence survey data shows how well consumers in general have adjusted to life post the financial crash. 
 
In the chart below confidence is tracked in February 2008 (pre-recession), 2010 (post-recession, pre-general election), 2015 (above pre-recession GDP level. pre-general election) across gender, age and household income segments.
 
 
Men, Millenials and higher earners show greatest current confidence, with all segments showing confidence levels higher than before the crash in 2008. 
 
Overall UK consumer confidence is at its highest February level since 2002 and 18 points above February 2008. Then people were very worried about the state of the economy; the GfK economic  situation measure was (-69) with some improvement to -46 in February 2010. Today the measure is 0 (February 2015), the highest since the Millennium. Certainly confidence has been greatly boosted by the economic recovery and shifts in consumer behaviour and attitudes.
 
During the period 2008-15, the biggest jump in confidence is among over 65s (up 30 points) and among top earners (29 points); since the last general election the biggest changes in confidence have been at either end of the age-range, among household earning over £35,000 and among men.
 
Households earning under £14,500, baby boomers aged 50-64 and women have seen the lowest improvements in confidence since February 2010. Much effort in the general election campaign will be to win over the women’s vote where economic recovery is less entrenched.
 
The Baby boomers will be the guinea pigs in adjusting to the new pension freedoms, with recent research commissioned from GfK NOP showing some 5 million of the over 50s intending to take out some or all of their personal pensions. The impact of these changes could be considerable across a range of sectors and brands, with big-ticket purchases (property and cars) set to be beneficiaries.
 
Many may be tempted to invest funds themselves through the growing numbers of online crowd-sourcing vehicles, at the heart of the current UK Fintech boom in digital services delivery. 
 
For marketers, confronted by a rapidly changing political, economic, regulatory and technological environment, the need to understand and engage with customers has never been greater. 
How this is done may be becoming more uncertain. Two waves of GfK consumer research on financial buying channels provide some concern that all may not be well in the digital space; that a physical presence is becoming necessary in a world where advice and a human voice / face is required.  
 
Economists are struggling to locate the consumer beat. Marketers, who generally are more successful in forecasting the consumer beat, face a challenging time.
 
The Feel-Good mood of spring of 2015 may be very different in March 2016.
 
Read more from John in our Library.

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