Consumer Spending Rises This Holiday Season

Despite feelings of uncertainty about the future of the economy, consumers in Middle Tennessee are more willing to spend money now, a study shows.

More than a quarter of respondents to a survey indicated that they expect to spend more during this holiday shopping season than they did last year, according to the Middle Tennessee Consumer Confidence Index recently released by MTSU’s Office of Consumer Research.

“This offers some hope for local retailers as more consumers expect to increase their spending than decrease their spending. Apparently, some local consumers have not given up on consumer spending,” the report states.

A testament to the increase in consumer spending can be found in the county’s sales tax revenue when compared to last year. While all of this is immediately beneficial to the local economy, it does little to offer hope for the long-term future, warns Tim Graeff, director of MTSU’s Office of Consumer Research.

“It certainly doesn’t hurt, but I don’t think increased spending is going to solve all our problems,” he said. “What’s really dragging down consumer confidence is perception about jobs. If that can be fixed, short-term spending isn’t going to have any significant long-term effect.”

Graeff added that while consumers are spending money more freely right now, that may not be the case come 2011.

“We don’t know what’s going to happen next year; if (consumer) perception is comparable to what it was a year ago, they could go back to not spending,” he continued. “Until the job market is fixed, we’re going to see a long-time decrease in spending. They will go out and splurge a little big now, but they won’t make significant changes in their budgeting if they’re worried about their job – which a lot of people are.”

The Consumer Confidence Report states that the decline in the future expectations index to 86 from 99 in September has kept the overall confidence index from increasing.

Nearly half of the survey’s respondents said they expected the stock market to remain relatively level for the next 12 months – another positive indication of consumer confidence in the economy, Graeff said.

“The fact that relatively few consumers expect a decline in the stock market over the next 12 months is a positive indicator that consumers also do not foresee a sharp decline in the value of their savings and investments. This can provide a level of comfort that can lead to increased spending,” he said.

Graeff explained that consumers feel wealthier when they have money in savings or invested in the stock market.

“A lot of times, budgeting and spending is based on how much (consumers) have saved up,” Graeff continued. “If you feel wealthier based on your savings, that can make you want to go out and spend money.”

That said, Graeff also pointed out that changes in consumer confidence have remained rather stagnant, which means that people are settling into the idea that the economy will remain slow.

“It’s a way of saying, ‘We know things are bad, but this is kind of the way things are going to be for a while,’ and that can be a problem,” he said. “If they start losing hope for the future, that can really cause problems for consumers’ willingness to spend. Perception can have an effect on spending, which will have an effect on the economy.”