Will consumer sentiment hold up if the world economy falters again?

Will consumer sentiment hold up if the world economy falters again?

Last week, I used my column on our sister site just-food, against the backdrop of the G20 Summit, to discuss whether the Western economies were finally out of recession.

Although, I warned readers early on that I was about to sit on the fence, the majority of evidence I presented leant towards a fragile recovery. It was a position a friend of mine - who works as a risk analyst at a large insurance company in the US - called me on to question as soon as he read it.

He was firmly of the view that we were fast approaching a double-dip or 'W' recession. All journalists, you should know, believe they are infallible, so I held my ground and put down the phone convinced that further good news would present itself over coming weeks to back my view.

Of course, almost every bit of data I have seen since has undermined my position and given credence to his. As I reported in the piece, recent US growth has been slower than predicted. And, that fear has grown over the last few days as figures from the US manufacturing, housing and labour markets all came in below expectations.

"This confirms a significant loss of momentum and suggests that recent consumer weakness may be spilling over to manufacturing as well," said Aneta Markowska of Société Générale in New York in the FT yesterday (1 July)

Unfortunately, those looking for solace elsewhere should look away now. In Asia, production activity indices for markets as important to the recovery as China, South Korea, Taiwan, India and Australia all showed weaker activity for June.

Although China, whose figures will be watched with particular interest (or should that be concern), is still expanding, it is doing so at a slower rate than has been the case in recent months - let us not forget this is a market that depends on exports.

Elsewhere in the business pages there was bad news from a diverse selection of sources from US Treasuries to the Baltic Dry Goods Index, which measures freight rates for bulk goods.

So how does this sit with the evidence last week of returning consumer confidence in the retail sector in the UK? It may be that all the figures pointed to above are combining to produce one almighty early warning alarm, but that the consumer on the street simply hasn't heard the bell go, isn't interested after almost two years of doom-mongering, or quite simply doesn't understand. If that's the case we are all in for one big shock when this all ripples down to the high street.

The flip side of this is that consumers have weighed up the risks ahead and have decided to continue to trade up to affordable luxuries in sectors such as clothing, food and drinks anyway.

We have discussed at length on this site how this recession, the biggest since the 1930s, has affected consumer behaviour. The feeling is that it accelerated the recent trend amongst shoppers to be highly sophisticated bargain hunters.

But the move towards premiumisation and the idea of affordable luxury have also survived the downturn and are a prominent part of the recovery - whether it be short-lived or not.

The truth is that whilst the recession has been painful to many, if people kept their jobs it was largely a media event. Belts were tightened to be sure, but the average family was not affected too badly. Once that had sunk in, consumers began to trade up in certain sectors once more as a means to treating themselves for thriftiness elsewhere.

News of a slip back into recession will not shock the public in the way that the first fall did. Firstly, they are far more immune to bad news now and, secondly, the media will be hard pushed to illustrate it in the hysterical tones generated by the near meltdown of the financial system of 2008.

Consumer sentiment then may be a stronger force going into any secondary downturn than it was in the primary fall. Whilst it won't be enough to shore up economies alone, for fashion, food and drinks industries it may act as a buffer to the worst effects.