The Soft Underbelly of the Economy: Current GDP Growth Not Sustainable
ANN ARBOR, Mich.–(BUSINESS WIRE)–Overall U.S. customer satisfaction dips for a second consecutive
quarter, falling 0.1% to a score of 76.5 (on a scale of 0 to 100) on the American
Customer Satisfaction Index (ACSI®).
While neither a large decline nor a score substantially lower than the
prior nine quarters, this score reflects the lowest aggregate ACSI level
since the third quarter of 2016.
Why is ACSI slipping and what are the implications?
“The news about economic growth during the first quarter of 2019 was
interpreted by most media outlets as positive and as evidence the
economy continues to be strong,” said Claes Fornell, ACSI Founder and
Chairman. “However, upon closer examination and adding the weakness in
customer satisfaction, the picture becomes a warning sign.”
Consumer spending growth – the largest component of GDP – was far below
normal. It’s extremely rare, and unsustainable for the economy to grow
at a healthy rate unless consumer spending increases by 3-4%. For
reference, the first quarter number was 1.19%. The reason for the
weakened consumer spending is evident from the weakness in customer
satisfaction, which tends to suppress consumer demand.
This doesn’t always happen, however – as the ACSI fell sharply in 2014
and 2015 without any negative effect on spending, but that had more to
do with pent-up demand following the Great Recession and continued
employment growth. This time, there’s also employment growth, but not as
strong as most media reports indicate.
Unemployment sank to 3.6% – the lowest since 1969. But a sizable part of
that came from a fall in the labor force participation rate: More people
without work stopped looking, and they are not counted in the
unemployment data.
The level of unemployment is low, and to some extent is responsible for
the stagnant or slightly reduced level of aggregate customer
satisfaction. When labor markets are tight there’s more employee
turnover, especially in service industries. That tends to adversely
affect service quality, thereby having a negative effect on customer
satisfaction.
When unemployment is low, it usually puts pressure on firms to increase
wages, and to the extent that firms raise prices by passing on higher
cost of labor to consumers, also tends to have a negative effect on
customer satisfaction and consumer spending. Wages and hourly earnings
are indeed up, but not by much. In fact, while the latter are up 3.2%
over the past year, inflation negated as much as 60% of that since the
consumer price index increased 1.9%.
Unless consumer spending growth increases – and there is some indication
that it rose at a sharper rate in March – by about three times what it
was in the first quarter, GDP growth is unlikely to remain strong. For
such spending to grow at a faster rate, it would help if consumers were
more satisfied with the goods and services offered in the market place,
households had more disposable income, and inflation stayed in check.
It’s difficult to envision all that happening in the near future. While
ACSI data predict continual weak consumer spending, there might be a
rebound of sorts, if only due to a reversal to the mean in the sense
that first quarter spending was abnormally low. But overall, the U.S.
economy will most likely run into headwinds fairly soon.
The national ACSI score reflects customer satisfaction across sectors
and industries over a rolling 12-month period. For more, follow the ACSI
on LinkedIn
and Twitter at @theACSI
or visit www.theacsi.org.
No advertising or other promotional use can be made of the data and
information in this release without the express prior written consent of
ACSI LLC.
About ACSI
The American
Customer Satisfaction Index (ACSI®) has been a
national economic indicator for 25 years. It measures and analyzes
customer satisfaction with more than 400 companies in 46 industries and
10 economic sectors, including various services of federal and local
government agencies. Reported on a scale of 0 to 100, ACSI scores are
based on data from interviews with roughly 300,000 customers annually.
For more information, visit www.theacsi.org.
ACSI and its logo are Registered Marks of the University of Michigan,
licensed worldwide exclusively to American Customer Satisfaction Index
LLC with the right to sublicense.
Contacts
Katie Johnston, 610-228-2248
katiej@gregoryfca.com