During an economic downturn/recession, consumers usually become more concerned about preserving their own financial well-being. They plan to save more while borrowing and spending less. The opposite is the case when the economy grows.
Despite strong first-quarter economic performance and better-than-expected retail sales in April, new Gallup Poll economic data (May 6-9)* suggest that consumer perceptions of their personal financial situations have not improved this year. The data also show that consumers plan to act more like the recession is ongoing, than like an economic recovery is underway, at least for the remainder of the year. This leads me to support the Federal Reserve's caution at its most recent Federal Open Market Committee meeting and add my own caution to it. Gallup's consumer perception data -- information that we update twice a month or more -- continue to show consumer economic perceptions stabilizing but not improving. In my view, this implies that the economy is likely to stagnate or even turn down during the second half of the year.
Consumer Perceptions of Their Own Finances Have Not Improved
Half of all Americans (51%) currently rate their financial situations as excellent or good. This figure is about the same as in April and March (52%), and down from the percentage who rated their personal financial situations as excellent or good in January (54%). This means that despite all the positive economic reports during the first five months of 2002, Americans say their personal financial situations are not as good as they were in January.
Currently, 54% of Americans say that their personal financial situations are getting better while 28% say they are getting worse. This is virtually the same as the percentage who said their financial situation was getting better in April (54%) and March (55%). It is up from the percentage who said things were getting better in February (51%). Still, this level is down from January, when it stood at 60%. Once again, Americans do not report an improvement in the way that their personal financial situations are trending (getting better or worse) compared to the beginning of this year.
Forty-three percent (43%) of consumers say they expect their incomes to increase a lot or a little over the next six months. This is about the same as the 44% who said the same thing in April, but down from 48% in January. Seven percent (7%) of consumers currently say they expect their incomes to go down a lot or a little over the next six months -- about the same as in April (8%).
Consumers Plan to Continue Saving More While Borrowing/Spending Less
Currently, 40% of Americans say they will increase their savings by a lot or a little over the next six months. This is similar to the April number (40%) and down slightly from January (42%). In May, 15% of consumers -- up from 10% in April and 12% in January -- say they expect to decrease the amount they save monthly a lot or a little. This could portend a positive trend for consumer spending.
Forty-three percent (43%) of consumers now say they will decrease the amount of money they owe a lot or a little over the next six months. This is up from April (41%), but about the same as in January (44%). Only 14% of consumers currently say they plan to increase their debt level -- about the same as in April (13%) -- and not a good sign for retailers during the second half of this year.
Finally, 24% of consumers say their level of spending will decrease over the next six months. This is the same as in April (24%), but better than January (27%). Currently, 24% of consumers say their spending will increase -- again, the figure is similar to last month's (24%) and equal to the number who say their spending will decrease. When just as many consumers are saying that their spending during the next six months will decrease as increase, it is hard to see how anyone can anticipate that the consumer will lead a continuation of economic recovery during the second half of 2002.
*Results are based on telephone interviews with a randomly selected national sample of 1,012 adults, aged 18 and older, conducted May 6-9, 2002. For results based on this sample, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±3%. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
