ACSI Index Shows Falling Customer Satisfaction; Will it Damage the Economic Recovery?

A drop in the American Customer Satisfaction Index may lead to less spending.

Jul 22, 2014 at 8:10AM

Treat people badly and they will spend less money with you ... especially if they fear a return of poor economic times. That, in turn, could slow an overall economic recovery. 

A sharp first-quarter decline in customer satisfaction contributed to a slowdown in consumer spending growth, according to the American Customer Satisfaction Index, or ACSI.

The drop comes after record satisfaction levels in the fourth quarter of 2013 helped push spending somewhat higher, despite a lack of discretionary income growth. What's more, the first quarter's slower spending seems to be continuing in the second quarter. Slower-than-expected retail sales in April and May appear to support the weakening inclination to spend that consumers signaled when surveyed by the ACSI in January through March. 

"There may be more trouble ahead if the slide in customer satisfaction continues," ACSI Chairman Claes Fornell wrote in the report released earlier in July. "Weaker demand could further threaten economic growth in the second quarter and beyond."

A small drop after a historically strong period is not a reason to panic, but it does underscore just how fragile the economic recovery is. The American people want things to be better, and improvements in the unemployment rate suggest they are. But until the recovery gains long-term traction, people are going to be cautious about spending money.

The recession hit after a stretch of prosperity, and many of those affected learned a hard lesson about being ready for a rainy day. Because of that, early signs of trouble will cause a portion of the American public to dial down their purchases, a decision made easier when companies offer poor service.

The weakening is widespread
The ACSI covers five economic sectors: accommodation and food services, health care and social assistance, information, transportation, and energy utilities. All five showed declines on the index in the first quarter.

Industries that account for nearly $1 trillion in economic activity are down significantly. Here's a snapshot:

  • Subscription television service fell 4.4%, from an ACSI score of 68 in 2013 to 65.
  • Consumer shipping dropped 3.6%, from 84 to 81.
  • Internet service providers fell 3.1%, from 65 to 63.
  • Hotels dropped 2.6%, from 77 to 75.
  • Hospitals fell 2.6%, from 78 to 76.
  • Investor-owned energy utilities sank 2.6%, from 77 to 75.

"Collectively, dissatisfied customers who reduce or postpone spending are always a threat to short-term economic growth," Fornell wrote in the report.

Expenditures on energy and health care are of course less discretionary than things like subscription television services, delivery services, air travel, hotel stays, and dining out. You can put off a fancy meal or a trip, but you can put off paying your electric bill only so long. The same is true in health care.

This could be bad news for some companies
The combination of lower satisfaction and less spending across so many areas suggests that consumers are not only being cautious, they have less tolerance for poor service than when money wasn't as tight. This is most clearly illustrated in the ASCI's 4.4% drop in satisfaction that consumers have with subscription-TV service -- the biggest drop of any category for the period.

With customers now having more options than ever to watch television without paying a traditional cable company like Comcast(NASDAQ:CMCSA), Cox, or Time Warner Cable, (NYSE:TWC) dropping pay-TV makes sense for an increasing number of people. If you're looking to cut costs, that's a logical place to start because there are comparable offerings at a lower price. If you also happen to hate dealing with that company, it makes the decision that much easier.

If overall customer satisfaction is down and people are going to tighten their purse strings, that will likely impact the sectors that routinely perform the worst on the ACSI -- pay-TV, mobile phones, and Internet service providers. Of course, it's not a coincidence that many of the companies mentioned above -- plus AT&T and Verizon -- offer multiple services that people have expressed the most dissatisfaction with.

Given that ACSI has consistently ranked the same sectors -- and many of the same companies -- at the bottom of its index, it seems unlikely that this latest warning will lead to much change.

Lower customer satisfaction leads to less spending, and that hurts the entire economy. These numbers are troubling, but mostly so for the perennial ACSI losers. Those companies may not recover, as evolving markets and an unwillingness to improve customer treatment create conditions that cause people to leave and not come back. 

How can you get rich from cable's demise?
With news like this and so many alternatives to view content, you know cable as we know it is going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers