EY ITEM Club UK Autumn Forecast 2013
It’s difficult to not feel better about the economy at the moment. The headlines are now full of good news and growth. Given that this growth is being driven by increased consumer spending and confidence, is now not the time for consumer focused business’ to be setting ambitious growth targets? We urge a little caution.
Positive outlook for the housing and services sector
There are some clear opportunities for the housing and services sectors based on increased confidence in the housing markets. However these upsides are being driven by debt as much as income; and reflect greater confidence in the future than a marked increase in incomes today. In addition, we expect the impact of this improved outlook to vary markedly by region.
Low increases in average earnings continue to hold back most individuals
Consumer spending in total has expanded for last seven quarters – however it has been driven in a large part by stronger than expected job creation, generous up-rating of social benefits and incomes outside the pay packet (such as interest and dividends). For most consumers - who kept their jobs through the crisis and have few investments – the picture is therefore more challenging than the headlines suggest. Average wage growth continues to lag inflation in 2013, and we only expect wage growth to creep above inflation in 2014. In the mid term we foresee greater income inequality developing - with a continued ‘hollowing out’ of the middle income segments up to 2020.
Continued focused on target consumer segments and regions is required
For consumer goods companies that target the higher incomes segments the recent headlines are likely to be good news. However for companies targeting a wider range of consumers – or those that are particularly reliant on the the middle or lower incomes segments, we urge caution. Growth targets need to be set based on a detailed understanding of the segments and regions that you are targeting.
Overall, we encourage all to look a little further behind recent headlines before signing up to stretching growth targets.
Gavin Pape, Director, Commercial Strategy Advisory, EY