Surveyso f Consumer Attitudes 0 ^""^flffi: f 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 May 1979 Quarterly Survey June 11, 1979 INFLATION AND ENERGY PROBLEMS HEIGHTEN PESSIMISM Page HIGHLIGHTS 1 Widespread Declines Recorded 2 Double-Digit Inflation Expected 4 Personal Prospects Pessimistic 5 Business Prospects Weaken 6 Buying Attitudes Weaken 8 Inflation Prompts Divergence in Attitudes 9 Summary Outlook 12 ATTACHMENTS: May Tables and Charts Outstanding Debt Among American Households Consumer Evaluations of Credit Transactions ERRATA: In Table 26, "new fuel efficient models" is incorrectly listed as a negative response when it should appear as a reason why it is a good time to buy a car. * * * The May 1979 Survey included 1,251 interviews conducted between April 25 and May 30, 1979. Institute for Social Research • P.O. Box 1248 • Ann Arbor, Michigan 48106 • (313)763-5224 -1- Highliqhts * In the May 1979 Survey, the Index of Consumer Sentiment was 68.1, down almost 6 Index-points from the February 1979 survey, and almost 15 Index-points below May 1978. * The largest declines from 3 months ago were among families with incomes of $15,000 or more (with the Index falling to 62.1 from 70.9), and the largest declines from a year ago were among households with heads aged 18 to 34 (where the Index declined from 95.1 to 74.6). * Price expectations continue to heighten. In May 1979, 45 percent of all families (54 percent among high-income families) expected prices to go up by 10 percent or more during the next 12 months, up from 26 percent who held a similar view in May 1978 (33 percent among high-income families). In May 1979, consumers expected prices to go up by 11.4%, on average, somewhat above the 10.7% recorded in February 1979, and significantly above the 8.2% recorded in May 1978. * Evaluations of personal finances worsened sharply among high-income families. In May 1979, 37 percent of all high-income families said they were better off financially than a year ago, down from 50 percent in February 1979. More frequent complaints about high and rising prices account for the growth in unfavorable evaluations. * Despite the near majority (48 percent) who expect prices to go up by more than their incomes during the next year, fully one in four respondents expect their nominal income to go up by 10 percent or more during the next year. Compared to a year ago, expected income increases have helped to offset the impact of rising prices on personal financial evaluations. * The majority continue to expect bad times in the economy as a whole during the next 12 months (63 percent) and 5 years (57 percent). Perceptions of the path of the economy have worsened significantly since February. Consumers also more frequently expect business conditions to worsen during the year ahead in May 1979 (37 percent) than in May 1978 (21 percent). * Attitudes toward buying conditions for automobiles are now less favorable than a year ago. In May 1979, 39 percent of all families rated buying conditions for cars favorably, down from 50 percent in May 1978. Unfavorable evaluations were held by 48 percent of all respondents in May 1979, up from 32 percent in May 1978. Widespread Declines Recorded In the May 1979 Survey, the Index of Consumer Sentiment was 68.1, down almost 6 Index points from the February 1979 Survey (73.9), and almost 15 Index points below May 1978. The Index of Consumer Sentiment has now declined 21 Index points since reaching its May 1977 peak of 89.1. The Index value among families earning $15,000 or more was 62.1 in May 1979, down 8.8 Index points from February 1979 (70.9), and down 12.6 Index points from May 1978 (74.7). This decline was more pronounced among families earning $20,000 or more, whose Index value was 73.5 in May 1979, down 10.8 Index points from February 1979 (84.3), and 12.6 Index points from May 1978 (87.1). In comparison, among families with incomes of less than $15,000, the May 1979 Survey recorded an Index value of 66.4, down just 1.9 Index points from February 1979 (68.3), but nonetheless down 14,1 Index points from May 1978 (80.5). The loss in confidence has been widespread across income subgroups during the past two years. Although nearly one-third of the loss recorded among high income families was recorded during the three month period from February to May 1979, the overall two-year loss is nearly identical for families earning less than $15,000 (19.2) and for families earning $15,000 or more (22.0)—see text table A on next page. The decline in confidence has also been widespread across age subgroups. Although each age groups posted similar overall declines during the past two years, nearly the entire loss in confidence among those under age 35 was recorded during the past year, when their Index value declined from 95.1 to 74.6--a loss of more than 20 Index points. Middle age respondents posted a higher rate of decline during the three month period February 1979 to May 1979, falling from 74.6 to 65.3. In May 1979, the Index of Consumer Sentiment recorded nearly identical readings in each region: the Northeast (64.9), the North Central (68.2), the South (69.1), and the Western region (69.6). Although the overall two-year decline in each region has been similar, nearly the entire decline in the Western region was recorded during the past year in comparison to significant declines from May 1977 to May 1978 within other regions. During the three month period from February to May 1979, the decline in the West and North Central regions was somewhat greater. Table A Recent Changes in the Index of Consumer Sentiment ICS Components Region Aqe Family Income North North ICS Current Expected East Central South West 18-34 35-54 55+ <15,000 >15,000 Current Level May 1979 68.1 88.7 54.9 64.9 68.2 69.1 69.6 74.6 65.3 64.1 66.4 62.1 Three Month Comparison Feb. 1979-May 1979 -5.8 -3.5 -7.3 -3.1 -7.6 -4.4 -7.9 -6.3 -9.3 -3.6 -1.9 -8.8 i CO One Year Comparisons May 1977-May 1978 -6.2 -1.8 -9.2 -8.4 -7.4 -7.1 -0.7 -2.5 -10.2 -5.9 -5.1 -9.4 May 1978-May 1979 -14.8 -8.8 -18.1 -14.8 -13.4 - 15.2 -16.8 -20.5 -13.6 -10.4 -14.1 -12.6 TWO YEAR TOTAL LOSS -21.0 -11.3 -26.9 -23.2 -20.8 - •22.3 -17.5 -23.0 -23.8 -16.3 -19.2 -22.0 -4- Although the May 1979 Survey marks the second year of decline, the Index declined by almost twice as much during the past year (15 Index points) compared with the prior year (6 Index points). The much smaller decline recorded from May 1977 to May 1978 resulted from growing pessimistic expectations being par­ tially offset by continued favorable evaluations of current economic conditions. Evaluations of current economic conditions registered only minor and insignificant declines from May 1977 to May 1978 (102 to 98.2), in comparison with significant declines in favorable expectations (81.8 to 73.0). From May 1978 to May 1979, favorable evaluations of current economic conditions have significantly declined (98.2 to 88.7), and declines in favorable expectations have accelerated (73.0 to 54.9). Double-Digit Inflation Expected Price expectations have greatly heightened during the past year. In May 1979, 91 percent of all families expected prices to increase during the next year, up from 85 percent in May 1978. Almost 70 percent of all families expected prices to increase by five percent or more in May 1979 (53 percent in May 1978), and 45 percent of all families expected prices to increase by ten percent or more in May 1979 (26 percent in May 1978). On average, consumers expected prices to increase by 11.4% in May 1979, up from 10.7% in February 1979, and 8.2% in May 1978. This represents the highest mean expected price increase ever recorded in these surveys. Only in one previous quarter (November 1974) did the average expected price increase exceed 10%. Moreover, the May 1979 reading is the second consecutive quarterly reading above 10%. Expected changes in both unemployment and interest rates continued to grow unfavorable. Among all families, 40 percent expected employment to increase during the next twelve months, up from 26 percent in May 1978. Just nine percent of all families in May 1979 expected unemployment to decline during the next year, down from 23 percent a year ago. Interest rates are expected to go up by 61 percent of all families in May 1979, up from 56 percent in May 1978. Despite expectations of rising unemployment as well as inflation, infla­ tion rather than unemployment continues to be viewed as the more serious econo­ mic hardship facing the nation. The proportion giving priority to unemployment has fallen to 18 percent in May 1979 from 26 percent in May 1978, while the priority accorded inflation increased to 68 percent in May 1979 from 63 percent in May 1978.