Consumers see a rosier, but still vulnerable, future
Seeing less erosion in their household finances, consumers become more optimistic.
With the holidays behind them, consumers are spending more freely for day-to-day needs, such as food, clothing, and medical expenses. However, they continue to keep a close eye on their gasoline spending.
More consumers feel it’s a good time to make a major purchase (33% vs. 26% last quarter). Their purchase interest strengthens for furniture and, to a lesser extent, major appliances and carpeting. Interest in shopping for a computer remains ahead of last year, but interest in buying televisions has cooled. Travel plans gain momentum this quarter.
We see a slight upturn in consumers shopping for a home, but not enough to indicate a trend just yet. The percent of homeowners who believe their home lost value during the past six months continues to decline but, at 31%, still exceeds those who believe their home gained value (13%). Looking ahead, more consumers expect home values to rise in the next six months (30%) than decline (21%), while half (49%) expect stable home values.
Finally, some good news about household income! This quarter, more consumers report that their income increased, with fewer saying their income decreased, than at any point in the previous two years. Now, consumers with increased income in the past year (30%) nearly match consumers with decreased income (32%). By comparison, in fourth quarter 2011, 21% reported increased income, and 35% reported decreased income.
Consumers have a tenuous sense of job security, despite an increase in those reporting that a household member regained work or earnings. Most consumers (58%) still feel vulnerable to a future layoff or loss of wages.
Consumer perception that prices are rising increases six points this quarter to 69%, reversing a five-point decline in the previous quarter. Recent gas price hikes likely contribute to this perception.
Over the past two years, most consumers with credit cards have been holding their balance in check. While 18% report that the amount they owe on credit cards rose in the past month, more (22%) say it declined.
The number of consumers who added to their savings in the past month rebounds three points to 38%.
More consumers say their household financial situation improved in the past year (23%) and fewer say it worsened (40%) than at any time in the previous three years of measurement. However, this trend has a ways to go to balance the number of “better off” and “worse off” households.
Optimism about personal finances jumps seven points to 45%, and pessimism falls seven points to 17%. This is the most optimistic Americans have felt about their future finances since the first quarter of 2010.
Although the economy continues to be the primary national problem on consumers’ minds, their perception that the economy is becoming stronger climbs eight points this quarter to 36%, while the perception that it is weakening falls ten points to 40%.
Americans’ sense of how things are going for the country as a whole still tends to the negative side, but with dramatic improvement this quarter, as those saying things are getting worse for the country drop from 71% to 55%.
Americans pleased with President Obama rebound to 41%, following two quarters in the 34-36% range. Over half of Americans (57%) continue to feel that the nation’s problems are too big for any President to solve, as was the case throughout 2010 and 2011.
It took economists until September 2010 to decide that the “Great Recession” had ended in June 2009. However, consumers are just now beginning to feel that the economic downturn may have bottomed out and started to rebound. As pressure on their personal finances eases, consumers are loosening the purse strings for consumables and entertaining plans for major purchases, particularly for the home (e.g., furniture, major appliances) and vacation travel. Consumers remain cautious though, with lingering doubts about job security.
While consumer demand is rising, it is too soon for manufacturers and retailers to raise prices or cut promotions. Consumers remain highly sensitive to price increases in general, not only at the gas pump. In fact, aggressive promotion at this time could accelerate the conversion of consumers’ purchase plans into actual purchases.