11/1979 Report

NOVEMBER 1979 SURVEY Surveyso f ConsumerAttitude s Monitoring Economic Change Program

F. Thomas Juster, Director George Katona, Founder Richard T. Curtin, Director Monitoring Economic Change Program Consumer Survey Program Surveys of Consumer Attitudes ADVANCE REPORT December 3, 1979

SHARPLY LOWER BUYING ATTITUDES * In the November 1979 survey, the Index of Consumer Sentiment was 63.3, 1.2 Index points above the 62.1 recorded in October, and 1.2 Index points below the 64.5 recorded in August 1979. Although the Index has remained largely unchanged since mid-1979, the current level of consumer sentiment representsa significant decline from ayea r ago when the Index figure was 75.0. The largest declines recorded in the November survey involved buying attitudes toward homes. *Amon g families with incomes of $15,000 or more, the Index of Consumer Sentiment stood at 57.2 in November, nearly2 Index points below the 59.1 recorded in August 1979, and 10Inde x points below the November 1978 reading (67.7). Among families with incomes of $20,000 and over, the Index value was 68.3 in November 1979, down from 70.0 in August, and 81.0 in November 1978. * The largely unchanged reading in the Index of Consumer Sentiment was due to off setting shifts in itssubcomponents . In the November survey, attitudes toward personal financial progress and buying conditions—thecurren t subcomponent—decl ined sharply in comparison to the August quarterlyreading . In contrast, attitudes toward short and long term business prospects improved somewhat in the November survey over the August readings. * Buying attitudes for houses declined sharply in the November 1979 survey. Overall, just 28 percent of all families rated buying conditions as favorable for houses in November, down from 46 percent in August 1979. Unfavorable attitudes grew from 48 per cent in August 1979 to 66 percent in November 1979. This same sharp deterioration in favorable house buying attitudes was documented among high income families. When asked why they felt buying conditions for homes were unfavorable, fully 61 percent of all famil ies mentioned high interest rates making current buying conditions unfavorable,u pfro m just 27 percent in August 1979.

The November 1979 survey indicatestha t consumer sales, especially for houses and cars, will continue on their downward path through the first quarter of 1980. Although the overall level of consumer sentiment has remained largely unchanged since mid-1979, attitudes toward buying conditionshav e weakened considerably due to tight credit conditionsan d high interest rates. In the November 1979 survey, 1,307 interviewswer e obtained between October2 2 and November 25.

Institute for Social Research • P.O. Box 1248 • Ann Arbor, Michigan 48106 • (313) 763-5224 -2-

In November 1979, 44 percent of all families reported that they were worse off financially than a year ago, up from 31 percent in November 1978; 30 percent reported being better off financially, down from 37 percent in November 1978. This shift in personal financial attitudes was sharper among high-income families. Among families with incomes of $15,000 and over, 34 percent reported being better off financially than a year earlier (down from 45 percent in November 1978), and 42 percent reported being worse off financially (up from 26 percent in November 1978). When asked about their personal financial situation, nearly half (47 percent) of all respondents explained that they were worse off financially because of higher prices, significantly above the 31 per cent who gave this reason in November 1978. Importantly, in November 1979 as well as November 1978, about 30 percent of all households reported being better off because of past income increases.

Among all families, 25 percent expected in November 1979 that their income would increase by 10% or more during the next 12 months, up from 21 percent in November 1978. Families somewhat more frequently expected income increases of 6-9% in November 1978. Among families with incomes of $15,000 or over, 35 percent expected income increases to be 10% or more during the next year, up from 24 percent in November 1978.

Expected changes in real incomes remained quite pessimistic, however, since inflation is expected to continue at its double digit pace. Consumers on average expected prices to increase by 11.2% during the next 12 months in November 1979, up from the 10.4% recorded in August and the 8.9% recorded in November 1978. Overall, almost half (48 percent) of all families now expect prices to increase by 10% or more during the next year.

News heard and recalled of recent changes in business conditions was overwhelmingly negative in the November 1979 survey. Fully eight times as many unfavorable as favorable news items were reported in November 1979 (87 versus 11 percent). Two in three respon dents (67 percent) rate the current business conditions as worse than a year ago, up from just 42 percent in November 1978.

Some improvement in short and long term business expectations was noted in the November 1979 survey. Among all respondents 20 percent reported that they expected good times in the economy as a whole during the next 12 months, up from 17 percent in August 1979, while 68 percent reported expecting bad times financially, down from 71 percent in August 1979. Although this improvement is small and insignificant, it does indicate a slowing of the decline.

Interest rates are expected to increase by 62 percent of all families in November 1979. Although the majority still expect interest rates to continue their upward movement, there has been a significant increase in the proportion who expect declines. Prior to the October 6th Federal Reserve Board announcement, expectations for increasing rates were at or near all-time peak levels. Following the announced rise in interest rates, the proportion who expected declines in interest rates during the next year increased to 20 percent in November 1979 from 10 percent in August 1979 among high income families.

33 percent of all families felt it was a bad time to buy durables, up from 27 percent in August 1979 and 21 percent in November 1978. Fewer respondents, when explaining their market views, mentioned buy-in-advance rationales, and somewhat more frequently mentioned higher prices as the cause of postponement.

Favorable attitudes toward market conditions for cars were held by 38 percent of all families in November 1979, largely unchanged from the 39 percent recorded in November 1978. Unfavorable assessments, however, are now held by the majority (52 per cent), up from 40 percent in November 1978. When asked to explain their views, 18 percent mentioned high interest rates as the reason for unfavorable car buying conditions, up from 1 percent or less in August 1979 and November 1978. Throughout 1979, the rise in unfavorable assessments of car buying conditions among families with incomes of $15,000 or more was steep: the proportion who reported unfavorable attitudes increased by about 5 percentage points per quarter, increasing from 35 percent in February to 51 percent in November 1979. During this time, buy-in-advance rationales declined significantly (16 percent in Novemver 1979, down from 28 percent in November 1978). -4-

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F. Thomas Juster, Director George Katona, Founder Richard T. Curtin, Director Monitoring Economic Change Program Consumer Survey Program Surveys of Consumer Attitudes

November 1979 Quarterly Survey December 11, 1979

SUBSTANTIAL DECLINES IN BUYING ATTITUDES

Page

HIGHLIGHTS 1

NEAR RECORD LOW 2

DECLINE WIDESPREAD 3

BUYING ATTITUDES WEAKEN 3

PERSONAL FINANCES STRAINED 4

BUSINESS CONDITIONS UNFAVORABLE 5

SUMMARY OUTLOOK 6

Attachments:

November Tables and Charts

Vehicle Ownership and Purchases Among American Families

* * *

The November 1979 Survey included 1,307 interviews conducted between October 22 and November 25, 1979.

Institute for Social Research • P.O. Box 1248 • Ann Arbor, Michigan 48106 • (313)763-5224 Highlights

* In the November 1979 survey, the Index of Consumer Sentiment was 63.3. Al though the Index has remained largely unchanged since mid-1979, the current level of consumer sentiment represents a significant decline from a year ago when the Index figure was 75.0.

* Among families with incomes of $15,000 or more, the Index of Consumer Sentiment stood at 57.2 in November, nearly 2 Index points below the 59.1 recorded in August 1979, and 10 Index points below the November 1978 reading (67.7).

*The largely unchanged reading in the Index of Consumer Sentiment was due to offsetting shifts in its subcomponents. In the November survey, attitudes toward personal financial progress and buying conditions—the current subcomponent—decl ined sharply in comparison to the August quarterly reading. In contrast, attitudes toward short and long term business prospects improved somewhat in the November survey over the August readings.

*Buying attitudes for houses declined sharply in the November 1979 survey. Over all, just 28 percent of all families rated buying conditions as favorable for houses in November, down from 46 percent in August 1979. Unfavorable attitudes grew from 48 percent in August 1979 to 66 percent in November 1979.

*In November 1979, 44 percent of all families reported that they were worse off financially than a year ago, up from 31 percent in November 1978; 30 percent reported being better off financially, down from 37 percent in November 1978. This shift in personal financial attitudes was sharper among high-income families.

*Expected changes in real incomes remained quite pessimistic since inflation is expected to continue at its double digit pace. Consumers on average expected prices to increase by 11.2% during the next 12 months in November 1979.

*News heard and recalled of recent changes in business conditions was overwhelm ingly negative in the November 1979 survey. Fully eight times as many unfavorable as favorable news items were reported in November 1979 (87 versus 11 percent).

*Interest rates are expected to increase by 62 percent of all families in November 1979. Although the majority still expect interest rates to continue their upward movement, there has been a significant increase in the proportion who expect declines.

*Favorable attitudes toward market conditions for cars were held by 38 percent of all families in November 1979, largely unchanged from the 39 percent recorded in November 1978. Unfavorable assessments, however, are now held by the majority (52 percent), up from 40 percent in November 1978. -2-

Near Record Low In the November 1979 quarterly survey, the Index of Consumer Sentiment was 63.3, 1.2 Index points below the 64.5 recorded in August 1979. Although the Index has remained largely unchanged since mid-1979, the current level of consumer senti ment represents a significant decline from a year ago when the Index figure was 75.0. The largely unchanged reading in the Index of Consumer Sentiment was due to offsetting shifts in its subcomponents. In the November survey, attitudes toward personal financial progress and buying conditions—the current subcomponent—decl ined sharply in comparison to the August quarterly reading. In contrast, attitudes toward short and long term business prospects improved somewhat in the November survey over the August readings. The November figure is just 5.3 Index points above the all-time record low recorded in late 1974. The pattern of decline among the subcomponents of the Index during the past year has been uneven (see Table A below). From November 1977 to November 1978, the only significant declines recorded were in business expectations, while evaluations of personal finances and market conditions for durables remain largely unchanged. In contrast, during the past year, personal finances and atti tudes toward buying conditions declined as steeply as business expectations. All component questions were within several Index-points of their all-time record low levels in November 1979, except for attitudes toward buying conditions for durables. Despite sharp declines during the past year, attitudes toward buying con ditions for durables have remained 20 Index-points above the record low 1974 level. The smaller declines in attitudes toward buying conditions for durables continues to be based on buy-in-advance price rationales. Buy-in-advance reasoning, however, has now greatly diminished with respect to the car and housing markets, and buying attitudes have weakened considerably due to tight credit conditions and high inter est rates.

TABLE A

Current Conditions Expected Conditions Index of Personal Market Personal Year to Year Index- Consumer Financial Conditions Finances 1-year 5-year Point Change Sentiment Progress Durables in Year Business Busines:

Nov 1977-Nov 1978 -8.1 -1 -4 -2 -30 -17 Nov 1978-Nov 1979 -11.7 -20 -15 -8 -22 -13

Record Low Reading 58.0 81 96 99 45 46 (1974-1975) Low Quarterly Reading 63.3 86 120 95 46 48 in 1979 November 1979 Reading 63.3 86 120 97 52 54 -3-

Decline Widespread

The decline in consumer confidence has been widespread among income and age subgroups as well as across geographic region.

Among families with incomes of $15,000 or more, the Index of Consumer Senti ment stood at 57.2 in November 1979, nearly 2 Index points below the 59.1 recorded in August 1979, and 10 Index points below the November 1978 reading (67.7). Among families with incomes of $20,000 and over, the Index value was 68.3 in November 1979, down from 70.0 in August, and 81.0 in November 1978.

The Index of Consumer Sentiment declined by approximately 12 Index points during the past year among each age subgroup, although younger respondents continue to remain relatively more optimistic. Respondents under age 35 recorded an Index value of 70.8 in November 1979, down from 82.5 in November 1978. Respondents aged 35 to 54 years recorded an Index value of 60.7 in November 1979, down from 73.3 a year earlier. Respondents over age 55 were the least optimistic, recording an Index value of 57.3 in November 1979, down from 69.0 in November 1978.

By November 1979, the Index value in each geographic region ranged between 60 and 66 -- an insignificant difference. During the past year, however, Western residents, starting from a relatively higher level, recorded the sharpest declines. The Index value among residents of the Western region declined by a total of 20 Index points to 61.9 in November 1979, down from 71.7 in August, and 82.4 in November 1978. In contrast, sentiment among residents of the Northeast, North Central , and Southern regions each declined by approximately 10 Index points during the past year.

Buying Attitudes Weaken

Buying attitudes for houses declined sharply in the November 1979 survey. Overall, just 28 percent of all families rated buying conditions as favorable for houses in November, down from 46 percent in August 1979. Unfavorable attitudes grew from 48 percent in August 1979 to 66 percent in November 1979. This same sharp deterioration in favorable house buying attitudes was also documented among high in come families. When asked why they felt buying conditions for homes were unfavor able, fully 61 percent of all families mentioned high interest rates making current buying conditions unfavorable, up from just 27 percent in August 1979.

Favorable attitudes toward market conditions for cars were held by 38 per cent if all families in November 1979, largely unchanged from the 39 percent recorded in November 1978. Unfavorable assessments, however, are now held by the majority (52 percent), up from 40 percent in November 1978. When asked to explain their views, -4-

18 percent mentioned high interest rates as the reason for unfavorable car buying conditions, up from 1 percent or less in August 1979 and November 1978. Throughout 1979, the rise in unfavorable assessments of car buying conditions among families with incomes of $15,000 or more was steep: the proportion who reported unfavorable attitudes increased by about 5 percentage points per quarter, increasing from 35 percent in February to 51 percent in November 1979. During this time, buy-in- advance rationales declined significantly to 16 percent in November 1979, down from 28 percent in November 1978.

Favorable market attitudes for large household durable goods were held by 54 percent of all respondents in November 1979, largely unchanged from the 58 per cent recorded in August, and 56 percent recorded in November 1978. Unfavorable buy ing attitudes toward durables, however, have increased substantially: in November 1979, 33 percent of all families felt it was a bad time to buy durables, up from 27 percent in August 1979 and 21 percent in November 1978. Somewhat fewer respon dents, when explaining their market views, mentioned buy-in-advance rationales, and somewhat more frequently mentioned higher prices as the cause of postponement.

Personal Finances Strained

In November 1979, 44 percent of all families reported that they were worse off financially than a year ago, up from 31 percent in November 1978; 30 percent reported being better off financially, down from 37 percent in November 1978. This shift in personal financial attitudes was sharper among high-income families. Among families with incomes of $15,000 and over, 34 percent reported being better off financially than a year earlier (down from 45 percent in November 1978), and 42 percent reported being worse off financially (up from 26 percent in November 1978). When asked about their personal financial situation, nearly half (47 per cent) of all respondents explained that they were worse off financially because of higher prices, significantly above the 31 percent who gave this reason in November 1978. Importantly, in November 1979 as well as November 1978, about 30 percent of all households reported being better off because of past income increases.

In the November 1979 survey, families more frequently expected to be worse off rather than better off financially in a year (24 versus 21 percent). This repre sents a continuation of the record low level first established in early 1979. Personal financial expectations have remained at record low levels as the result of improved expectations for nominal income increases being offset by even higher expected price increases. Among all families, 25 percent expected in November 1979 that their income would increase by 10% or more during the next 12 months, up from 21 percent in November 1978. Families somewhat more frequently expected income increases of 6-9% in November 1978. Among families with incomes of $15,000 or over, 35 percent expected income increases to be 10% or more during the next year, up from 24 per cent in November 1978.

Expected changes in real incomes remained quite pessimistic, however, since inflation is expected to continue at its double digit pace. Consumers on average expected prices to increase by 11.2% during the next 12 months in November 1979, up from the 10.4% recorded in August and the 8.9% recorded in November 1978. Over all, almost half (48 percent) of all families now expect prices to increase by 10% or more during the next year.

Business Conditions Unfavorable

News heard and recalled of recent changes in business conditions was over whelmingly negative in the November 1979 survey. Fully eight times as many unfavor able as favorable news items were reported in November 1979 (87 versus 11 percent). Two in three respondents (67 percent) rate the current business conditions as worse than a year ago, up from just 42 percent in November 1978.

Some improvement in short and long term business expectations was noted in the November 1979 survey. Among all respondents 20 percent reported that they expected good times in the economy as a whole during the next 12 months, up from 17 percent in August 1979, while 68 percent reported expecting bad times financially, down from 71 percent in August 1979. Although this improvement is small and in significant, it does indicate a slowing of the decline.

Interest rates were expected to increase by 62 percent of all families in November 1979. Although the majority still expect interest rates to continue their upward movement, there has been a significant increase in the proportion who expect declines. Prior to the October 6th Federal Reserve Board announcement, expectations for increasing rates were at or near all-time peak levels. Following the announced rise in interest rates, the proportion who expected declines in interest rates dur ing the next year increased to 20 percent in November 1979 from 10 percent in August 1979 among high income families. -6-

Expected changes in unemployment were somewhat more favorable in November 1979 (54 percent expected increases) than in August (61 percent), but remained significantly lower than in November 1978 (34 percent). Despite the sharp increase in expected unemployment during the past year, inflation rather than unemployment was considered the more serious economic problem facing the nation by a margin of 65 to 24 percent in both November 1978 and 1979.

Although confidence in government economic policy to combat inflation and unemployment improved somewhat over the late-summer low point, it remains significantly lower than a year earlier. In November 1979, just 10 percent of all families felt the government was doing a good job (largely unchanged from the 8 percent in August and 13 percent in November 1978), while an unfavorable rating was given by 39 per cent in November 1979 (down from 42 percent in August, but above the 26 percent recorded in November 1978).

Summary Outlook Surveys conducted during 1979 indicate substantial and widespread declines in consumer sentiment across population subgroups as well as among attitude and expectation measures. Many components of consumer sentiment are now near or at all time record low levels. The appeal of buy-in-advance price rationales, which had held buying attitudes at an elevated level until earlv 1979, has now significantly diminished. Recent tight credit conditions and high interest rates have led to con siderably lower buying attitudes. These findings indicate that consumer sales, especially for houses and cars, will continue on their downward path through the first half of 1980.