Why Aren’t Buyers Spending? Separating Economic Reality From Perception

Sales figures from the past 12 months don't paint a particularly rosy picture for the promo products industry. Distributors in Q1 experienced the worst year-over-year sales growth rate since the first quarter of 2021, when the world was still in the throes of the COVID-19 pandemic. ASI Research shows that the growth rate in the most recent quarter declined by almost 1% from the previous year. The decline came after two quarters of slowing growth in the latter half of 2023.

Similarly, the Counselor Confidence Index, which measures distributor health, declined during the previous two quarters and currently sits at 94. This is six points lower than the baseline measure of 100, and the lowest it’s been since Q1 of 2021.

The growth rate and confidence within the promo industry are at levels not seen since the late stages of the pandemic – a fact that many promo companies attribute to increased buyer reluctance. For instance, Connor Mouty, strategic account executive at Top 40 distributor Stran & Company (asi/33772), says buyers have been making more-calculated decisions about what they’re spending their money on this year.

“While companies are not necessarily freezing their spend, everything is more hyper-focused from a perspective of, ‘Let’s really think about this. Does this make sense to employ our resources here?’ They’re just being a bit slower about where and how to proceed, versus full steam ahead,” he says.

Mouty adds that buyer reluctance isn’t confined solely to promo but is spread across all marketing strategies as companies are putting their spending decisions under a microscopic lens. He notes how the economic roller coaster since the pandemic has created a cautious mindset for some, causing them to loop in different departments when approving promo decisions and taking longer in general to decide.

Joseph Miller, owner of AIA LogoTools (asi/444130), wouldn’t necessarily say there is “reluctance,” but states that clients have increased budget restraints that are due to the conditions of the economy. He says clients are still spending, but just not as much “based on the economy and the fact that this is an election year with the primaries. Not knowing what the outcome may be exposes some hesitancy.”

It’s a common theme: Promo sales are suffering, and that’s because the economy isn’t doing well.

Or is it? Economists indicate that the economy is showing numerous positive signs of health. “The economy continues to deliver month after month,” wrote Robyn Gibbard, a manager with Deloitte LLP’s macroeconomics team. He’s not the only one who feels that way; other economists and experts are also surprisingly bullish, and there are many indicators they look at to explain why.

For instance, wage growth has been outpacing inflation since March 2021 (although wages have been steadily on the decline since March 2023). Inflation was at its peak in July 2022, reaching a whopping 9.2% due to the tightening of the labor market, price increases and high energy costs post-pandemic. As of April, it’s cooled to a healthy 3.4%, fluctuating slightly between 3-4% since May 2023.

Likewise, the GDP grew $1.6 trillion last year and at rates of 4.9% and 3.4% respectively in the last two quarters of 2023. Typically, 2% GDP growth is “good,” according to Moody’s Analytics, and the U.S. economy had recorded six straight quarters of growth greater than 2% until the first quarter of 2024, where it came in at 1.6%.

U.S. Bureau of Labor Statistics data also shows that unemployment has been under 4% (generally considered a very healthy rate) since January 2022 and has hovered from 3.7% to 3.9% since August 2023.

And another key indicator, the Dow Jones Industrial Average, reached its all-time high on Feb. 23, while the S&P 500 had its best quarter since 2019 in Q1 of this year.

The ‘Vibecession’

So, if the economy is doing relatively well, why are buyers still hesitant? The answer comes down to feelings.

Kyla Scanlon, an options trader whose social media commentary on the economy has turned her into something of a celebrity, coined the term “vibecession” in June 2022. She defines the phrase as “a period of temporary ‘vibe decline’ where economic data such as trade and industrial activity are relatively okayish.” In other words, although the economy may be relatively stable, people still feel poorly about it, so the perceptions of consumers and the reality of economic conditions are misaligned. As Scanlon puts it: “the vibes are off.”

Since then, many analysts have started talking about the “vibes” when describing how consumers feel about the economy.

In Scanlon’s newsletter, she writes about how perception and personal experience play a greater role in the economy than one may think, specifically in relation to consumer spending. According to her, if consumers perceive the economy as “bad” or inflation as high, they might pull back on spending, increase prices in their businesses, ask for raises at their jobs – therefore fueling price increases in a “self-fulfilling prophecy.”

Consumer spending drives three-quarters of the U.S. economy, according to Wall Street Journal reporter Heather Haddon. Popular indices like The Conference Board and University of Michigan measure consumer sentiment through random sampling on questions related to economic perception and expectation.

While sentiment has generally been on an upward trend since June 2022, it is down markedly from pre-pandemic levels, with further drops possible this year as consumers expect inflation to ramp up.

Consumer sentiment is largely influenced by the cost of goods and rising prices. However, certain types of metrics are louder when influencing peoples’ emotions, such as the price of food, said Haddon.

“The consumer sentiment has not been great for a while and one of the reasons is some of these food prices,” Haddon said in a podcast from earlier this year. “People see prices change at their grocery store, at their restaurant, and it adds up. It’s something that’s very in your face. It’s like gasoline prices. You notice it and you get irritated. It’s like, ‘Why aren’t the prices like they used to be? Please bring me back to 2019 or 2009.’”

For instance, in Barack Obama’s 2023 Netflix series “Working: What We Do All Day,” a young home care provider named Randi said that her version of peace is being at home, on her porch, in a rocking chair. “My refrigerator is full, my bills are paid, my child is cared for. That’s the dream.”

Then, as the two walk down a grocery aisle, the former president asked if this dream is harder for folks to achieve now than it used to be. “It’s $6.15 for a box of cereal. I make $10 an hour. That’s one hour of my paycheck gone and a couple of candies,” Randi replied.

Economists say that once food prices go up, they are likely to stay up, so it’s not always a reliable measure of inflation – but it’s often one that induces more adverse feelings toward the economy.

As the index depicts, the consumer price index grew 3.4% between April 2023 and April 2024. This has decreased significantly since the steep 9.2% change in June 2022, but is still at a higher level than pre-pandemic years. According to Avatrade, a healthy consumer price index should rest around 2% year-over-year growth.

Similarly, the CPI category for “shelter,” which includes U.S. housing prices, has skyrocketed since the pandemic, and increased by 5.5% from April 2023 through April 2024. Only 20% of Americans think now is a good time to buy a house, as home prices rose 6.1% in that same 12-month period, and the number of houses sold decreased by 1.9%. Further, U.S. average 30-year home interest rates currently stand at 7.17%, a 3.9% increase from May 2023.

Furthermore, widely contested concepts like “economic voting” certainly factor into perception. For instance, Republicans are less likely to rate the economy as “excellent/good” compared to Democrats, according to Pew Research Center. And even among Democrats, there are huge variations between the older and younger generations. Overall, this research study shows that upper-income, white Democrats age 65 and older are more likely to approve of the economy than other demographics.

One of the main reasons for this can be attributed to polarization in the media and the increased party divide, propagated by news outlets that cater to specific audiences. According to the Vanderbilt Unity Index (VUI), which measures the public’s ideological leanings, political polarization has been increasing in the U.S. This is particularly reflected from months of war between Russia-Ukraine and Israel-Hamas. The VUI reports that the number of Americans who identify as “extremely liberal” and “extremely conservative” has increased, as has the number who strongly disapprove of the current president.

Economist Ben Harris, director of the Economics Studies program at Brookings Institute, refers to the concept of “referred pain” as something that influences the vibes. Feelings of anger or resentment toward the government on their handling of various other issues in today’s political climate may be carried over into economic perception – akin to the philosophy of, “if one thing is bad, then everything is bad.”

To merge the gap between economic perception and reality, overcoming promo buyer reluctance might look like having a wide variety of different types of customers and finding areas where one is up when another is down, says Mouty. “I also look at it as an opportunity to step up to the plate,” he adds. “If we can find ways to better understand their business, what their pain points are, and how we can bring value to them, we must see all that under one lens and get creative in our solution-based offerings.”