Question

What is the outlook for consumer demand over the next year? Are the signals mixed or strong? Explain.

Is the residential real estate slump over? What is the outlook for autos?

Is consumer confidence strong today? By what measure?

Answer 1

Let us understand the consumer demand over the next year.

From smart packaging to pop-up stores, technology is allowing consumer products companies to engage with consumers in new and innovative ways. How else will digital capabilities shape the brand-consumer relationship in the year ahead? Our 2019 outlook explores the biggest technology-driven trends in the industry.

Exciting advancements in technology are becoming increasingly entrenched in the consumer products (CP) industry, helping fuel growth and ensuring benefits to both companies and their consumers. These developments are likely driven, in part, by CP companies’ continued commitment to a customer-centric approach to responding to marketplace trends, understanding consumer preferences, and deepening one-on-one connections with their customers and consumers.

In the past, CP companies haven’t generally been associated with being at the forefront of implementation of cutting-edge technology. But as a growing number of consumers research, purchase, and engage with brands digitally, it will likely become imperative for CP companies to adopt newer technologies—or risk being outdated.

Technology advancements, coupled with the continued pursuit of customer centricity, are at the heart of industry trends we foresee in 2019:

• Consumer product companies are developing proprietary technology to drive innovation and create a continuous and interconnected supply chain to drive operational efficiencies.
• Technology is at the heart of industry and consumer trends, such as:
  • the growth of direct-to-consumer (DTC) brands;
  • the emergence of branded pop-up stores; and
  • online retailers developing a brick-and-mortar presence, while also investing in smart packaging and exploring newer trends in neuro-nutrition and biohacking.
• Technology makes on-demand access to information possible, leading to full transparency in consumers’ ongoing interest in health and wellness, organic foods, and sustainability.

How technology is shaping new Consumer product strategies?

Enabled by technology, many consumer products companies are engaging with their consumers in more innovative and direct ways. The continued growth of direct-to-consumer brands, the reemergence of pop-up stores, and online retailers developing a brick-and-mortar presence are all accelerated by the deployment of disruptive technologies, creating more avenues for brands to have a dialogue with consumers.

Direct-to-consumer brands

The phenomenon of brands selling directly to consumers and skipping retailers altogether continues to grow in popularity. Apart from convenience and competitive product pricing, many consumers appreciate the personalized service they receive from these brands and frequently develop a special bond with them, which also plays a vital role in nurturing brand loyalty.

In addition to Direct To Consumers likely realizing greater margins on sales of their own products, having direct access to their consumers can allow these brands to collect valuable consumer data had typically only been the property of retailers.

Now let us look into whether residential real estate is slump or not?

A decline in residential real estate has led several recessions. With construction still in a multiyear slump, it seems unlikely to be the culprit this year.

The United States has had 11 recessions since the end of World War II. All but two were preceded by a big decline in the housing market.

Inside that bit of trivia lie some fundamental insights into housing’s outsize role in the business cycle, along with clues to suggest that the economy is on firmer footing than the increasingly pessimistic forecasts make it seem. The gist is this: The United States may or may not enter a recession this year, but if it does, housing is unlikely to be the cause, because it never really recovered in the first place.

“Housing is not in a position to lead this thing down,” said Edward Leamer, an economics professor at the University of California, Los Angeles.

How much it can help prolong the overall recovery is another matter. Home sales and prices have been sluggish in the face of rising interest rates. Still, the pace of construction, combined with pent-up demand from young adults, suggests that the sector should at least remain stable in the face of uncertainty elsewhere.

Housing is more volatile than bigger sectors

Even though housing does not account for all that much of the economy, its role in recessions is huge, because it is highly cyclical and sensitive to interest rates. Think of expansions and recessions as the cycle of things that go up and down a lot. Housing is a big determinant of where that cycle is headed because, unlike many other sectors, it has wide swings.

The housing sector accounts for as little as 3 percent of economic output during recessions and about twice that during booms. Other pieces of the economy are much bigger, but they don’t change nearly as much from boom to bust. Government spending, for instance, has hovered between 17 percent and 20 percent of the economy for decades. The three-percentage-point swing is about the same in each case, but government accounts for much more of the economy. Translation: Housing punches way above its weight.

As a result, while housing has never accounted for more than 7 percent of total output, it has on average accounted for about a quarter of the weakness in recessions since World War II, according to a 2007 paper by Mr. Leamer titled “Housing IS the Business Cycle.”

The outlook for Autos : U.S. auto sales are finally set to decline in 2019, although the end of the current boom has often been predicted and failed to materialize.

Most experts had expected sales to decline in 2018, but they were proven wrong as they reached 17.3 million, a gain of 0.6%. That marks the 4^thstraight year sales have breached 17 million.

This time, a combination of rising interest rates and prices will finally push sales growth into reverse, while a slowdown in China and stagnation in Europe will undermine balance sheets. U.S. sales are predicted to fall by between 1.2 and 4% in 2019.

The Detroit Auto Show, opening January 14 through January 27, will echo to profit warnings from the big car makers.

The Center for Automotive Research (CAR) at Germany’s Duisberg-Essen University expects sales of U.S. light vehicles to fall 4% in 2019 to 16.6 million and slip to 16.5 million in 2020. CAR said in a report that its forecast doesn’t include the impact of a possible trade war with Europe.

President Trump might finally try and right the imbalance which allows European cars to sell in the U.S. with a 2.5% tariff, while U.S. made ones carry a 10% tax in Europe.

Fitch Solutions predicts a smaller fall in U.S. sales.

“In 2019, the U.S. light vehicle market will drop below 17 million for the first time since 2014, as deals to encourage purchase in the latter months of 2018 and the prospect of higher interest rates will result in sales falling 1.8%,” Fitch Solutions said in a report.

Now, let us look into the consumer confidence;

Conference Board (CB) Consumer Confidence measures the level of confidence consumers have in the economy. When consumers are optimistic, they tend to spend more which increases consumption and overall economic growth.

A reading that is stronger than forecast is generally supportive (bullish) for the USD, while a weaker than forecast reading is generally negative (bearish) for the USD.

The University of Michigan's consumer sentiment for the US was revised higher to 97.2 in April 2019 from a preliminary 96.9, as the consumer expectations sub-index came in stronger than initially thought. Consumer Confidence in the United States averaged 86.51 Index Points from 1952 until 2019, reaching an all time high of 111.40 Index Points in January of 2000 and a record low of 51.70 Index Points in May of 1980.

The above graph is from the University of Michigan.

The consumer expectations sub-index stood at 87.4, above the preliminary reading of 85.8 and compared to March's 88.8. Meanwhile, the gauge for current economic conditions came in at 112.3, below the flash estimate of 114.2 and the previous month's final figure of 113.3. Inflation expectations for the year ahead was unchanged at 2.5 percent in April (vs preliminary 2.4 percent); and the 5-year outlook fell to 2.3 percent, un revised from early estimates and against March's 2.5 percent.