What’s the Outlook for “Back to School”?

GALLUP NEWS SERVICE

PRINCETON, NJ -- New Gallup Poll economic data show consumer confidence increasing for the second month in a row in July. While there was only a slight increase in the percentage of Americans rating current economic conditions as "good" or "excellent," the percentage saying things are "getting better" reached its highest level since February, and more Americans currently say now is a "good time" to find a quality job than at any time since August 2001.

So, what has happened in the past 30+ days to completely reverse the downward trend in consumer confidence that dominated much of the second quarter? Does this recent reversal imply that consumer spending will return in time to save the second-most-important sales season of the year for most retailers -- "Back to School"? Gallup's data on the latest consumer spending intentions provide some intriguing, if early, answers.

Consumers See Better Economic Conditions

In July, significantly more consumers (37%) rate current economic conditions as good or excellent than rate them as poor (21%). The gap between those saying current economic conditions are excellent or good and those saying conditions are poor is now +16 percentage points -- 2 percentage points greater than the +14 percentage-point gap of June and the largest positive gap in consumer ratings of the economy since mid-January.

Consumers See the Economy Improving

About half of all consumers (51%) say current economic conditions are "getting better," while only 38% say they are "getting worse." This is a clear improvement over June, when consumers were just about evenly split over the direction of the economy. July's percentages are also the most optimistic since mid-January (53% "getting better" and 39% "getting worse").

Consumers Are More Optimistic About Jobs

While June's job numbers disappointed Wall Street, that has not been the case with consumers. Thirty-six percent of consumers currently say that now is a good time to find a quality job. This is up four percentage points from June and is the highest level for this economic measure since August 2001.

Consumer Spending Intentions Surge

In March, 31% of consumers said they intended to increase their spending over the next six months. At the same time, 22% said they intended to decrease their spending, a difference of +9 percentage points. This followed a +2 percentage-point difference in February.

Throughout the second quarter, net consumer spending intentions declined steadily so that by June, only 24% of consumers said they planned to increase their spending, while 25% said they planned to decrease it, a difference of -1 percentage point.

In July, however, consumer spending intentions have done another complete reversal. Now, 29% of consumers say they plan to increase their spending over the next six months and only 19% say they plan to decrease it. The resulting +10 percentage points bring consumer spending intentions back to where they were in March.

Gas Prices May Determine "Back to School" Spending

A few weeks ago, Gallup reported that half of American consumers (49%) said that recent gas price increases had caused them financial hardship and about a third told Gallup they were having to cut back significantly on their household spending because of these increases. As a result, Gallup projected a drop in retail sales, particularly for retailers serving mostly low- and middle-income consumers.

However, gas prices nationwide peaked during the week of May 24, at an average of $2.06 a gallon. Since that time, prices have dropped -- reaching a low of $1.90 a gallon during the week of July 5 -- and are now at $1.92 a gallon.

Consumers spent their tax returns earlier this year. Now, it looks like consumers intend to spend their gas-price savings and more in time for "Back to School." Of course, this would be very good news for the nation's retailers at a time when they and Wall Street are worried about the recent consumer spending pullback.

Unfortunately, it is not at all clear that gas prices will continue to decline in the weeks and months ahead. Oil prices surged past the $40-a-barrel mark just recently. If this continues, increased gas prices cannot be far behind.

In sum, the success of many of the nation's retailers during "Back to School" may depend more on the price of gas and its direction at the pump than anything else this year.

Survey Methods

Results are based on telephone interviews with 1,005 national adults, aged 18 and older, conducted July 8-11, 2004. For results based on this total sample, one can say with 95% confidence that the margin of sampling error is ±3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.