Why retailers should be worried about the economy
The U.S. economy is far from strong or robust, according to Claes Fornell, the founder and chairman of the American Customer Satisfaction Index.
Given record low unemployment and a strong stock market, it is understandable why many commentators in the media are praising the “strong economy,” the firm noted in a press release highlighting a fourth quarter ACSI score that dipped to 75.4 on a scale of 100. However, even a cursory look beyond employment and the stock market provides a different picture and employment numbers are not as strong as they seem considering the low labor participation rate, Fornell said. While the rate has shown a slight uptick recently, a large number of people have given up looking for work compared with what was the case in the past, a claim that differs from the reality of retailers struggling to fill positions with qualified workers.
“The U.S. economy is far from strong or robust. It’s actually quite fragile,” Fornell said. “The sum of the goods and services that are purchased by the final user – for whom the American Customer Satisfaction Index measures satisfaction and GDP measures the monetary value – is in decline. GDP growth, at 2.1% in 2019, is weaker than its 25-year average.”
Fornell sees the American economic glass well below half full and offers other dour commentary about the state of affairs and where things are head. For example, he maintains the quantity and quality of economic output both show signs of softness. The efficiency in delivering quantity is determined by productivity. The quality of output is determined by the users of that output (what the American Customer Satisfaction Index measures). Poor productivity typically leads to wage stagnation, but it can also boost employment, as more workers are needed when productivity is weak. The U.S. has had both low productivity and low unemployment for quite some time now, according to Fornell.
He goes on to make various arguments to refute those who maintain the economy is on solid footing, seeing negative implications of what otherwise seem to be positive developments.
For example, a low unemployment rate is nothing to boast about because it can be attributed in part to a lack of productivity growth, Fornell said. However, in 2019 productivity saw its largest increase in a decade, but even that comes with negative consequences that may be lurking around the corner. The potential negative effects are more unemployment and lower customer satisfaction. Thus far, employment continues to be strong, with more jobs created each month. However, evidence shows a decline in the quality of economic output, according to Fornell.
While two important economic forces, employment and the stock market, have remained strong, this doesn’t mean the economy is strong, Fornell maintains. Many indicators, including a GDP growth of 2.1% he regards as weak, limited spending growth, slipping business confidence, a decline in quality of economic output and a weak appetite for investment suggest that it is on shaky grounds, according to Fornell.
Since the U.S. is a consumer economy, there must be a substantial increase in consumer spending and GDP needs to be above 3% which implies consumer spending would need to double its current growth rate of 2%, according to Fornell.