CLEVELAND, Ohio – Economic confidence among affluent Americans regarding the overall state of the economy declined five points this quarter (following a seven-point rise last quarter), due to national economic worries, according to the latest quarterly McDonald Financial Group Affluent Consumer Confidence Index results, released today. At the same time, the survey indicates that near-term personal spending and investment intentions remain high, largely on par with sentiment expressed last quarter.
The overall score for the April McDonald Financial Group Affluent Consumer Confidence Index was 50 out of 100 – a five-point (or 10-percent) decrease since the last survey in January with a score of 55.
"The latest survey results mark a notable shift in affluent sentiment since our survey's debut in January 2003.” Said David Legeay, senior vice president, McDonald Financial Group. “At that time, the affluent expressed general confidence in the economy but were somewhat reluctant to increase their spending and investing intentions, viewing the nation's economic recovery with confidence, but caution. In our April 2005 survey, the affluent demonstrate a decline in confidence since last quarter, but indicate their spending and investing will remain strong over the coming three months.”
Legeay added that spending and investing strength came from survey respondents’ confidence in their local economies and their personal finanicalportfolios, as well as from the belief that general business conditions will improve over the next six months. “The decline in their overall economic confidence, however, is driven by growing concerns over the future of the national economy,” he noted. “For example, the affluent respondents that we surveyed believe that the Fed will increase interest rates, that real estate speculation will curb, and that stock market growth will slow. As a result, many affluent individuals are now paying down debt and focusing on long-term investments."
The McDonald Financial Group Affluent Consumer Confidence Index - a quarterly measure of market sentiment - is based on a national survey of randomly selected individuals with investable assets of $500,000 or more, and/or personal annual income of $150,000 or more. The poll was conducted by independent research firm Penn, Schoen & Berland.
SURVEY FINDINGS. Although 44 percent of respondents said they feel the economy is on the wrong track, affluent Americans indicate that their personal finances may not be negatively affected in the short-term, many noting they plan to invest more money in the stock market over the next quarter.
Additional findings that demonstrate spending intentions include:
- Luxury spending remains high with 76 percent planning to hold their luxury spending steady and 10 percent planning to increase luxury spending, up from 5 percent in January.
- Plans to make a major home improvement over the next three months continue to increase, jumping six points from last quarter to 27 percent.
The April survey also found that while 60 percent of affluent Americans believe a real estate bubble exists, 37 percent of respondents still said they were more likely to put their money into real estate during the next three months as opposed to stocks, bonds or mutual funds, as real estate would provide the highest rate of return among investment vehicles. One reason for this is that the majority of respondents (61 percent) believe the bubble burst is a year or more away.
SHIFT TOWARD ECONOMIC CONCERNS. This quarter's survey revealed a shift toward concerns about the national economy and away from concerns about terrorism and Iraq as top issues facing the country.
When asked to identify the top issue facing the country, the affluent gave the economy and terrorism relatively equal weighting. This marks the first time in six quarters that the economy was cited as being on par with terrorism as a national concern. Seventeen percent of affluent Americans surveyed said they view the state of the economy as an equal or more important issue than the threat of terrorism at home (16 percent).
Affluent Americans also expressed concerns regarding increasing oil prices and a weakened U.S. dollar. However, these issues have not yet had an impact on the behaviors of the affluent, indicating a possible lag between the time an issue is identified as a growing concern and adapting behaviors. For example, nearly two-thirds (64 percent) view the historically low valuation of the dollar with concern. This has not yet translated into stated intentions to reduce purchases of imported goods. Similarly, a majority (89 percent) expressed concern over the negative impact of oil prices on the economy. However, 75 percent say they have not reduced their driving.
BUSINESS OWNERS PLAN TO ADD JOBS. Business owners – defined in the survey as those who are owners, principals or controlling shareholders in companies – view the national economic outlook more positively than the general affluent population. The overall Index score for business owners was 52 out of 100, compared to 50 for the overall affluent population score.
Fifty-six percent of business owners – who represent 27 percent of those polled – say the economy is headed in the right direction, compared to 53 percent of affluent consumers who say so. While 39 percent of affluent Americans say the economy is excellent or good, 47 percent of business owners say so. Additionally, 52 percent of business owners feel confident in the S&P rising over the next three months compared to 48 percent of affluent consumers.
Sixty-eight percent of business owners plan to add more jobs this year, with 36 percent planning to increase hiring in the next three months. Additionally, 32 percent of business owners feel that employment conditions in six months will mean more jobs compared to 30 percent of affluent Americans overall.
SURVEY METHODOLOGY. Penn, Schoen & Berland (PSB) conducted approximately 400 interviews among a representative nationwide sample of affluent individuals between March 28 and April 4, 2005. For the purposes of the survey, affluent individuals were defined as having a personal (not family) annual income of $150,000 or more, and/or having personal investable assets of $500,000 or more (not including primary residence). The margin of error among the national audience is +/- 4.9 percent.
The full McDonald Financial Group Affluent Consumer Confidence Index report can be found on the Key Corp. Web site by clicking here.