The global economy has entered a period of transition. After the high hopes so many had pinned on the rise of the BRIC nations — Brazil, Russia, India and China — and other emerging economies, their seemingly inexorable ascent has proved all too exorable, with global demand for raw materials slackening and internal economic indicators demonstrating a cooling in overall economic growth.
But there are other factors making for the creation of a climate of transition — and, to a certain degree, of uncertainty. The existence of both exogenous and endogenous forces, not least of which are the seeming return of great power geopolitics in Eurasia and the South China Sea, the discovery and exploitation of new energy sources within the U.S. — thus creating a new source of instability in the Mideast — and the continuing struggle to make an integrated Eurozone a reality — all contribute to the atmosphere of watchful waiting.
Because transition often means uncertainty, uncertainty in its turn creates a demand for diagnostic tools that can help businesses plot a course through unfamiliar and sometimes turbulent waters. One such source of data, based on actual events, including behavior — rather than reported attitudes and intentions — that has been neglected in the counsels of both private business and the offices of state is consumer spending.
A prime example is the — to some — surprising resilience of the US consumer in the wake of the financial recession of 2008. While few need reminding just how dire things were, especially at the epicenter of the disaster, in the US itself, with credit drying up and double-digit unemployment lingering for months, more attentive observers began to see evidence of “green shoots” surprisingly quickly after the smoke of the initial financial meltdown had cleared.
Yet this outcome was predictable, since careful attention to two key metrics — overall consumer spend and total US credit card receivables — indicated that US buyers were cleaning house, but were by no means willing to forego forever discretionary spending. On its own, the level of receivables on the books would not have told the whole story, or told it accurately.
There is no need to retreat into history to see the power of such metrics. In like regard, in today’s transitional and by no means turbulence-free environment, US consumer spend in highly discretionary categories such as lodging have been strong, with six percent year-over year growth in February 2014. And sure enough, in March, the US Department of Labor reported the creation of 175,000 new jobs and the press dutifully commented on the “spring thaw.”
The more categories into which consumer spend can be sliced, the more nuanced the picture. For example, many brick-and-mortar retailers reported sub-par performance during the extremely harsh — and long — winter of 2013-2014, which would seem not to chime with the stronger growth in jobs, the lower gas prices and solid consumer spend. But in the same period, SpendingPulse also reported the US eCommerce channel continued to grow to double digits.
Such granular, timely information is critical to those on the front lines of the payment business – merchants, their suppliers, manufacturers, importers and exporters – as the competitive back-to-school and holiday shopping seasons approach.
A version of this article appears in the Spring issue of MasterCard Advisors’ Compendium. For the full text of the article and other exclusive insights from MasterCard, please visit www.compendium.mastercard.com.