Listen: Next in Tech | Episode 52: Macroeconomic machinations

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Eric Hanselman

Welcome to Next in Tech, an S&P Global Market Intelligence podcast where the world of emerging tech lives. I'm your host, Eric Hanselman, Principal Research Analyst for the 451 Research arm of S&P Global Market Intelligence. And today, we'll be discussing macroeconomic trends and the results of the most recent Voice of the Connected User Landscape study with Mike Nocerino, who has been writing about a lot of that. Mike, welcome to the podcast.

Michael Nocerino

Thanks for having me.

Eric Hanselman

So there's a whole set of interesting data that the VoCUL study goes into. But I wanted today to talk about some of the interesting indications in the macroeconomic data. What does that data show about spending intent?

Michael Nocerino

So the data shows the resurgence of COVID, as well as the surge in inflation, is having a bit of a drag on consumer sentiment and consumer spending plans for the near term.

Eric Hanselman

Those perspectives actually dovetail in some interesting ways with other aspects of the study. Can you give us some details about sort of where all this data fits?

Michael Nocerino

So one of the strengths that we have is that a lot of our questions are forward-looking. So we're asking about intent over the next 90 days, some stuff over the next year or 2. And that gives us an advanced look, kind of a peak around the corner of what consumers are thinking about in their heads based on what the current economic environments are. So we can pick up on sentiment in how they feel about the economy in general. We can find out about their specific spending plans.

And the way that we have the survey constructed, we can both look at what specific intent is over the next 90 days but then ask people to kind of think about how does that compare to what they were doing a year ago, so we can get some comparativeness and add some context to the current environment. It's always easy with data sets to be like, this is what's happening right now and make a whole bunch of analyses based on it. But when you have comparative data and you can put it into context, you can really start to see how extreme or mild is the current environment compared to other similar situations that have come up in the past.

And one of the strengths with our data and with the context that we have is being able to look at what's going on currently and put that in proper perspective. In mid-2021, as vaccines are becoming more widely rolled out and stuff was opening up again, we saw a surge in consumer activity, all that pent-up demand. Some people dubbed it as revenge spending as people kind of wanted to get back out and get back out to normal.

And the only reason why it was so explosive of a return to spending was because of how low spending had been in 2020 because of stuff being shut down, people being worried about the virus spread and people, quite frankly, having a lot of tough times having to do with work and other things that kind of really was a drag on consumer activity overall.

So we get this big surge in spending. And then all of a sudden, we get into the fall, and things start to slow down again. And it was because of the rise of inflation. And then after that, we also had the new surge in the corona cases with the Omicron variant. And we just started to see people become a little more shaky in their willingness to go out and spend freely.

Eric Hanselman

Well, before we get too far along, first, I want to find out revenge spending. I mean, I've heard the term. But okay, what is revenge spending?

Michael Nocerino

So revenge spending is kind of a fancier way to explain pent-up demand. People were angry in a way of the hold that had been put on their lives, and the reopening of the economy allowed them to get back to normal. So they were spending on all the things they hadn't been able to do the previous year.

Eric Hanselman

But it sounds like this is also doing it at a certain level of escalation. This is a -- this is not just spending. This is really spending.

Michael Nocerino

True. But I also think that's where part of the context of our data comes in. And we understand that it was only so explosive because of how low we had been. So having that context of understanding that it was a very unique situation because of the economic factors, made it stand out much more than it probably would have otherwise.

Eric Hanselman

It's a real serious rebound, as you were saying.

Michael Nocerino

Right.

Eric Hanselman

Well, I want to talk about the study itself because I know our listeners will know about Voice of the Enterprise and a lot of that data, which tends to be very narrow in terms of its technology focus. We're really looking at some very specific areas of tech. This is really a study that's much broader. You've got numbers of respondents. The Ns for this are significantly higher. This study is, what, somewhere around 1,700 for most of the Ns or something on that order?

Michael Nocerino

So we have a couple of different groups that we use to answer 2 different pieces of surveys that are then complimentary to each other. We have the leading indicator part of our alliance, which is, yes, it's about 1,700 respondents. And they are a group -- they're a targeted group of business and tech professionals and as well some early adopter consumers, primarily in North America. And we surveyed them on consumer-related topics, macroeconomics, some consumer tech trends, stuff like that.

At the same time, we have our connected customer or consumer population-representative survey, which goes out to -- I think the macro group is about 2,000 that answers that stream of questions. And what we do with that group is that gives us a more -- balanced sample across a multitude of demographics. And we parallel a lot of questions between the 2 surveys so we can get different perspectives and be able to do some interesting comparisons across the 2 groups.

Eric Hanselman

And this is also like the Voice of the Enterprise, a panel that winds up participating because they get access to the data as opposed to studies and panels of respondents that get kicked up for gift cards or whatever the particular reward happens to be.

Michael Nocerino

Correct. And one thing that we found over the years is that by feeding the research back to the participants, it gives them an incentive to answer the surveys honestly and thoughtfully rather than just trying to complete it to get a reward.

Eric Hanselman

Yes. They're actually involved, and that participation is the thing that hopefully drives some better clarity in terms of the data that we get back.

Michael Nocerino

Precisely.

Eric Hanselman

We've got great longitudinal perspectives on this data as well. How does that drive the insights? And really, what does it say about the study and its results?

Michael Nocerino

So as we were just discussing putting context around the results, like talking with the discussion about pent-up demand and revenge spending, we were able to scale that and kind of look at it comparatively over previous surveys. And what we had seen was almost a record level of people saying they were planning to spend more money in the near future compared to any of our previous surveys.

And the only reason why we were able to understand the full magnitude was that we could compare it to the surveys we had done a year prior and 2 years prior to kind of have a baseline to compare it against. And it's actually one of the interesting things going on right now with the data is that we knew as we transition from 2021 to 2022 that we were going to start seeing some slowing in our net numbers because things would start to get back to normal. We will kind of fall back into a normal range from this exaggerated high that we were at.

Well, then we get inflation and we get a resurgence of COVID. So instead of being able to just interpret the data, say, "Oh, momentum is slowing because we're just getting back to normal, which is a good thing," now we've got inflation and COVID and all of this other stuff starting to mix back into it. And we're seeing that the momentum that the economy had over the summer, it looks like it really could have continued into the fall more than it did had it not been for inflation. Inflation seems to have artificially kind of cut that surge off prematurely.

And now we're in a situation where inflation is just kind of the dominant piece of what's going on with consumer spending right now. It's -- people are still out there spending, but it's what they're spending on. And because of rising inflation, rising energy costs, some of the impact from COVID still, although a side note on the COVID is interesting because, over the course of the pandemic, we saw a lot of people were not participating in consumer activities because they were worried about COVID. They were worried about getting sick. There were health concerns.

Well, what we saw is as people started to get back to normal over the summer, we saw concerns over COVID start to drop as a threat to their financial health. And then we saw the surge in inflation and energy. COVID is still a factor. It doesn't rate as high at the front of mind, top of mind for folks, but it's still there is an undercurrent. And it's one of the contributing factors to stuff like inflation and energy, which is more front of mind because that's now impacting people in their wallets, in their pocketbooks.

And one of the neat things with our data is we have very good economic demographics within the group. And we've seen clearly throughout the recovery that there is a big difference among how people are experiencing the recovery based on where they lie within an economic group or an income level. And what we've seen is while people are still out there spending, we're seeing a lot of budgets for lower-income households being shifted more towards having to keep up with buying essential goods, like paying their energy bills, gas, groceries, health care costs, stuff like that. And while those same things are having an impact on higher-income households and while those households also have to pay more for those items, just like their cohorts in the lower-income brackets, they still have available discretionary funds to go and travel and still go out to restaurants.

So we're seeing some big differentiation among different groups within the context of the recovery. And rightly so, the recovery overall at the most broadest level is showing progress. And it has been showing things getting better at the top line. And that's perfectly correct. It's just when you start to dig within it, you start to see differentiation. And you start to understand where some of the unease still lies among certain aspects of the U.S. population, even if not everybody necessarily feels that way.

So that's one of the great things in the data also are the demographics that give us this kind of look at beyond just the top line to kind of understand some of the issues that are boiling beneath the surface. And we're able to then also compare that longitudinally and see the change over time even with those -- how those different demographic groups are participating in the survey.

Eric Hanselman

Well, that's the great thing, I think, about this data. You mentioned the phrase unease. This is one thing that I think that's fascinating about the study itself, which is that this is what people are feeling. It's not economic data. It's not a specific economic slice. We're talking about different household incomes and all their perspectives and such. This is self-reported data.

And so the -- at the core of this is, this is how people are feeling about the economy, about all the other odds and ends, the things that we're identifying in the study. And that's something that I think is the aspect that really gives us some very interesting insights because especially in times like this, we're able to get really those core feelings of the study participants.

Michael Nocerino

Yes. Exactly. One of the great things is that with this data coming directly from people is we are getting their -- the exact feelings of actual consumers out there without any bias, without any slant, without any spin on it. And getting people's direct sentiment gives us a very unique look into what's going on out there in the real world.

Eric Hanselman

Well, I'd actually make the case that this is data that, in fact, is full of bias and slant and spin. It's because it's how users are really interpreting the world around them. And that, I think, is, in fact, that really useful thing. Now we've got economic data. You're talking about inflation. We've got inflation numbers about what the actual inflationary effects are. There's all sorts of great economic data out there, and there are economists who can hold forth on it.

But that's the thing that, I think, there's this interesting piece, which is this is really the individuals responding to the studies, their reaction, their expectation. It's their interpretation of what kind of household do they exist in, what is their expectation about inflation. And the important part is that's what's driving their behavior.

Michael Nocerino

Right. Exactly. And it also shows that how much depth there is and how much depth there could be in coverage of these topics that we're able to get into such a degree of nuance that I feel like it gives us a unique perspective from that regard.

Eric Hanselman

Yes. No, that's the fascinating aspect of all of this. So where does the study go next? And what are areas you're looking to expand into?

Michael Nocerino

So as far as the macro survey goes, we have a big portion of it that is longitudinal questions that we ask quarterly to keep getting that refresh, to keep having that comparative data, to keep understanding the directionality of where consumer sentiment and spending is going. Within that, we try to focus on specific issues. And a lot of times, that goes along with kind of what's going on out in the real world. We're able to be extremely responsive to what's going on that's affecting consumers directly.

And like we started this with coronavirus. When the coronavirus first started to become a problem, we were able to jump right into the next survey that was being fielded and just start asking questions about coronavirus. We were able to throw in some extra questions about the impact on where people were spending. One other aspect of the data that we have not covered yet today is we were asking questions about different areas where people would normally spend, stuff like travel, transportation, like airfare and stuff like that as well as stuff like gyms and other shopping and retail and going out to restaurants, to gauge the amount of their spending that they had changed because of the coronavirus impact.

And we saw people who had planned to go back to spending immediately when places would start opening up. We saw people that thought, "I might wait a couple of months, kind of see what happens." And then we had people that were much further out that were like, "I'm not going back anytime soon". And a lot of times, it was because of financial or health concerns relating to the pandemic. Those are questions we were able to put in on a moment's notice because we try and stay as up-to-date as possible with what's going on.

And probably one of our focuses going forward is going to be on inflation and other larger macroeconomic factors that are starting to have real weight on consumers' shoulders and see how that's affecting not just their sentiment but also if it's having any material change on to how much they plan on spending and where they plan on spending.

Eric Hanselman

A lot of that directionality of spend as well. Well, fascinating stuff. Well, we'll have to come back and update us as we go through the round for the next quarter. Wonderful stuff. Well, thank you for being on the podcast, Mike.

Michael Nocerino

Thank you for having me.

Eric Hanselman

And that is it for this episode of Next in Tech. Thanks to our audience for staying with us. And I hope you will join us for our next episode where we will be diving into a whole set of different aspects of technology because there is always something Next in Tech.