Las Vegas—What happens with consumer spending is key to your business, according to Wayne Best, chief economist for Visa. And unfortunately, consumers are not likely to start spending for a while.
Speaking at the Merchant Risk Council’ s E-Commerce Payments & Risk Conference, held here March 16-18, Best pointed out that we are not seeing the kind of rebound expected after a deep recession. Businesses aren’t hiring and consumers are still not ready to spend. As such, Best said, “We need to reset our expectations with this recession” vs. prior economic downturns.
Consumers will, lag, not lead, the recovery this time, since unemployment and housing will suppress spending, Best said. The key to recovery is job growth, he noted, and “a drop in unemployment is not going to happen anytime soon.”
While there has been some improvement in housing—home are no longer “overvalued,” Best said, except in the “previously juiced-up areas,” more trouble is coming. Despite an inventory correction, strategic defaults (when homeowners that can still afford their homes walk away from them anyway) are on the rise.
That’s going to put more homes on the market and suppress prices. What’s more, a slew of ARM loans are set to adjust in the next few years, which will have affect consumer confidence and spending.
Is there any good news for merchants? Well, e-commerce is expected to continue to grow, and it will become an increasingly larger portion of overall sales.
And while it seems like frugality is the new normal, Best says it’s probably more of a reprioritization of where consumers put their money. For instance, the travel and entertainment sector is showing signs of life.
Overall, he said, “the economy is performing measurably better today than it was a year ago,” and a year from now, it will be performing better than it is today.
Still, Best advised attendees that they may need to ”hunker down for a long winter.” Given the current period of unrest that’s expected to last for a few years, “it’s going to be a wild ride,” he said.