Mixed Signals, Media Storms, Bated Breath
We’ve been noticing some unusual activity in our clients’ AdWords account performance for the last four weeks. Ad budgets remained fairly consistent; yet accounts that traditionally performed well have seen a dip. While it’s not uncommon to see fluctuations in CPC, impressions and conversions, the variations we’re seeing is definitely out of the norm. So what gives? The easy answer is the media storm surrounding today’s election. Let’s take a deeper look at actual consumer spending and attitudes to see if “things will get back to normal” or if the roller coaster ride will continue past Election Tuesday 2016.
Consumer Confidence Dropped in October
The Consumer Confidence Index, a score that measures consumers’ outlook on the economy, increased for several months in a row and then dropped 5 points in October. Consumers’ optimism regarding short-term economic conditions softened while their income prospects remained relatively unchanged.
The University of Michigan publishes another consumer sentiment tracker. October showed a 4.4% decline in consumer sentiment and a 7% drop in future expectations.
Ok, so what does this all mean? Americans are worried about the economy but remain fairly confident that we’ll keep our jobs. We’re not too concerned about our next paycheck but “uncertainty” certainly lingers in the air.
Economic Indicators and Consumer Spending
Gallup tracks the average dollar amount American’s report they spend or charge on a daily basis. Excluded in their numbers are: home and motor vehicle purchases as well as normal household bills. Weekly results are based upon telephone interviews are accurate +/- $8. Over the last six months, purchases took a dip in June, rose a bit over the summer, dipped again in September, and has been up and down in October.
So is the election affecting our spending?
According to the Bureau of Economic Analysis, the GDP (used to measure economic output) increased 2.9% in the third quarter. The gain reflected an increase in consumer spending on services, notably on housing, utilities and health care. Spending on durable goods were notably due to motor vehicles and parts. If you dig deeper at the GDP by sector, private services had gains in Q1 and Q2. For private goods, Q1 was positive but dramatically fell in Q2.
In an October 31 New York Times article, the chief economist at Pantheon Macroeconomics said “it’s essentially untrackable and unknowable.” Here is where the data is up for interpretation.
The problem with blaming unease over the election for disappointing business results is that there is faint evidence for it in the broader data. Businesses continue to hire at a decent clip, new home sales are steady and measures of consumer confidence are down but not by much. And on Monday, the Commerce Department reported that consumer spending spending was 0.5 percent in September, a very healthy gain.
Interesting. Maybe the stock market is a better measure about what consumers are feeling about the economy. The market certainly rallied yesterday and today. Perhaps we’re tired of all the election news and are buoyed that it will be over soon.
High Expectations for Holiday Spending
The National Retail Federation reported that “consumers plan to put themselves on the top of shopping lists.” Their annual consumer spending survey (conducted by Prosper Insights & Anlaytics), indicates that consumers spend on average of $935.58 during the holiday shopping season. These numbers include gifts, food, decorations, greeting cards and self-spending. $935.58 is higher than last year’s $928.82. Some survey facts to consider:
- 43% respondents indicated they are being more cautious with their spending due to the uncertainty of the election season.
- 87% of consumers could be convinced to spend an extra $25 this holiday season if tempted by a good sale or promotion as “the perfect gift for themselves or others or free shipping.”
- 58% plan to buy for themselves, spending an average of $139.61, up 4% from last year.
- Department and discount stores have fierce competition with online purchases.
- 22.7% of consumers anticipate spending with small and local businesses.
Matthew Shay, NRF President and CEO, warns that “retailers should prepare for a rush of consumers in the weeks following the presidential election as they get more economic and political certainty and are looking to take advantage of promotions and deals that are too good to pass up.” Hmmm. It looks like there’s more pressure on brands to offer specials and discounts to entice consumer spending. In a future post I’ll explore price sensitivity and how its changed over the years due to online search and advertising.
So how is consumer spending affecting those brands who use AdWords to make more sales? It really depends. Based upon the above stats, demand for services is up and demand for motor vehicles is up. Everything else? It seems to be a mixed bag.
Has consumer spending affected your AdWords performance?
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