October Brings Fresh Perspectives on Economic Sentiment, Consumer Confidence

Q4 is officially upon us, ushering in the arrival of new perspectives and enlightening economic data from McKinsey & Co., eMarketer, GlobalWebIndex, and others. These Q3 reports provide us with a better understanding of how brands and consumers are faring amid such an unusual pre-holiday season. Let’s dive into the highlights. 

The McKinsey Global Survey published a notably positive shift in economic sentiment. More than half of all executives surveyed reported that economic conditions will “be better six months from now,” with only 30 percent predicting the economy will worsen. It may not seem like much progress, but according to McKinsey, that’s the smallest percentage of “pessimists” since the April 2020 survey. 

McKinsey & Co. cites that progress in COVID-19 rapid testing and diagnostic systems, case management, and a pipeline of vaccine candidates have contributed to a more confident outlook. In the most recent public health statistical models, experts predict that the U.S. will most likely reach herd immunity in the second half of 2021. 

Related: Axios/Ipsos poll finds that trust in the federal government continues to decline amid the pandemic.

These medical and therapeutic advances, combined with labor market improvements, are all said to be contributing to the surge in consumer confidence seen by The Conference Board’s September consumer confidence index. The private research group recorded its consumer confidence index rose to 101.8 in September, up from the revised 86.3 in August. 

Another likely reason for improved economic sentiment: a healthy financial and IPO market. The U.S. initial public offering market expects 11 deals and two direct listings in just this week, and global M&A volume is quickly approaching $2 billion for 2020. Technology investments make up almost a fifth of that total with deals like SoftBank’s $40 billion sale of chipmaker ARM. 

Related: BDO’s bi-annual bankruptcy update found that U.S. retail bankruptcies and store closures hit record highs in the first half of 2020. 

Consumer spending is also on the rise, steadily increasing since falling at the height of the pandemic in April 2020. 

Source: Opportunity Insights Economic Tracker

Q4 could define a new chapter of 2020, one marked by new consumer consumption habits, early holiday shopping events, remote learning, and a contentious election that may take several weeks to sort out. 

Pew Research Center found that a quarter of U.S. adults now get their news from YouTube. The Pew study found that “established news organizations no longer have full control over the news Americans watch, as only one-in-five YouTube viewers (23 percent) said they ‘often’ get their news from channels affiliated with established news organizations.” With video playing a more dominant role in people’s lives, this report is another example of how fragmented the media landscape has become, a trend that has only accelerated in recent months.  

New IAB data shows that 84 percent of U.S. consumers’ trust in brands either grows or is unaffected when they see companies advertising in the news. The IAB’s findings contradict “fears that companies have had about advertising alongside news cycles focused on the pandemic, civic unrest, and the election.” The study was conducted in September 2020 and sponsored by several organizations. In the end, no evidence of a “halo effect” where positive views of a company similarly influence consumers’ perceptions of associated brands was found. 

As we discussed in last week’s briefing, consumers are settling into new routines. However, many activities are not bouncing back as quickly as anticipated, with the return to the office being one prominent example. In New York City, The Wall Street Journal reports that only one in ten Manhattan office workers has returned to the office, hurting local businesses that rely on foot traffic. This slower return to office parks and towering skyscrapers is said to run the risk of causing a more protracted and painful recovery for New York City than what’s being observed in other parts of the country. 

Remote learning is another COVID-induced activity. Many students report frustration and increased stress levels related to various aspects of the remote learning environment, including that teachers are not “properly equipped for online learning.” More holistically, Zebra IQ’s refreshed State of Gen Z report offers a glimpse into the lives of the mobile-first generation during COVID-19.

Screen time is up with 21 percent feeling they spend too much time on TikTok, 19 percent on Facebook, 16 percent on Instagram, and 10 percent on YouTube. 

Fifty percent feel like they’re spending more on food during this time.

Twenty-nine percent feel like maintaining relationships has been the most challenging part of isolation. 

Seventy-one percent are optimistic about the next few months. 

Beyond where people work and attend school, how we shop is another aspect of life that is changing before our eyes. It is no secret that online shopping demand is expected to surge during the 2020 holiday season, and nearly every brand is preparing for this trend.

Tech platforms, including Pinterest, Instagram, and Google, have released holiday online shopping guides to provide new entrants and small businesses with the resources they need to open ecommerce stores and power methods for online shopping. While it may be dense reading for some, these helpful guides have the potential to support a new wave of ecommerce activity in local markets as small business owners become more comfortable with ecommerce solutions to drive sales. 

Related: Bed Bath & Beyond announces partnership with Shipt and Instacart ahead of the holiday. 

Amazon Prime Day will be held on October 13-14, almost three months after its conventional July timing. As a result, the promotions, deals, and consumer purchase behavior will be different, as summer and back-to-school products are traded for an early lead-in to holiday shopping.

 eMarketer predicts that the event will generate $9.91 billion in worldwide sales for the ecommerce giant, a 43 percent increase from last year’s event. In its report, eMarketer shared that “despite a more uncertain economy, [eMarketer] believes Prime Day will build on past momentum as consumers continue to spend heavily on ecommerce and will be active deal-seekers heading into the holiday season.” 

Of course, mounting competition from the likes of Target, Nordstrom, Home Depot, and other national retailers has the potential to diffuse Prime Day’s performance as others try to benefit from its powerful halo effect. Target is holding its own “Deal Days” event during Amazon’s Prime Day. Deal Days is said to be just the start of the retailer’s holiday promotions; Black Friday-like deals are expected to run through the entire month of November. Walmart is also hosting a “Big Save Event” from October 11 – October 15, and Home Depot announced it would host Black Friday-type sales for two months. 

As discussed in previous briefings, Amazon Prime Day initiated holiday shopping earlier in the calendar year, and other retailers have followed suit with 10.10 now just days away. In Retail Brew’s latest survey, 47 percent of respondents said their holiday discounts would start pre-Black Friday, with nearly 20 percent reporting that promotions will begin before Halloween. 

Source: Retail Brew

As reported by CNBC, American Airlines and United Airlines will start “furloughing more than 32,000 employees after talks for a national coronavirus aid package failed in Washington ahead of the CARES Act September 30 deadline.” While both carriers said they are prepared to reverse course if a stimulus deal is reached, the news leaves approximately 40,000 airline employees in limbo. 

The $25 billion CARES Act terms prohibited airlines from cutting jobs until October 1. While the aid was meant to help airlines tread water until there was a significant demand recovery, that trend has yet to materialize. Roughly 30,000 job cuts across American, United, and Delta airlines are expected to begin today. 

Related: Disney lays off thousands of furloughed workers as parks business remains closed. 

As the pandemic stretches into Q4, interest, and demand for personal or work-related travel remains at record lows. In recent days, The International Air Transport Association altered its 2020 travel forecast again in response to decreased demand and the global uptick in coronavirus cases seen in Europe and the Americas. The Geneva-based organization had anticipated a 63 percent decline in air travel compared to 2019 but is now expecting a 66 percent decrease. 

eMarketer reports that U.S. travel ad spending will continue its decline, plunging 41 percent this year. In recent days, the CDC extended its ban on cruising through October, another setback to the travel industry’s recovery.