Surveyso f ConsumerAttitude s 0 ^; q^nt £ 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 August 1979 Quarterly Survey September 10, 1979 LIMITED REBOUND FOLLOWING GASOLINE SHORTAGES Page HIGHLIGHTS 1 Second Year of Decl ine 2 Marginal Improvement in Personal Finances. ... 5 Economic Slowdown Reported 6 Buying Attitudes Decline 7 Summary Outlook 8 ATTACHMENTS: August Tables and Charts The August 1979 Survey included 1,212 interviews conducted between July 26 and August 26, 1979. Institute for Social Research • P.O. Box 1248 • Ann Arbor, Michigan 48106 • (313)763-5224 -1- Highlights * The Index of Consumer Sentiment was 64.5 in the August 1979 survey, up 4.1 Index-points from one month earlier, but 3.6 Index-points below the May 1979 quarterly reading. Overall, this survey marks the second year of decline, with several measures indicating record low levels of confidence. * Among families with incomes of $15,000 or more, the Index was 59.1 in August 1979, up 3.4 Index-points from July, but still 3.0 Index-points below May 1979 and 13.4 Index-points below August 1978. * Although personal financial attitudes have improved somewhat during the past 3 months, they remain near record low levels. On balance, more families reported that compared with a year earlier they were worse rather than better off financially (38 versus 33 percent), and more families expected to be worse rather than better off financially in a year (25 versus 23 percent). * Greater concentration of expected nominal income increases in the range of 6-9% were recorded in the August survey, and were accompanied by lower real income expectations due to the prospect of double digit inflation. * There were continuing reports of unfavorable changes in current business con­ ditions in the August 1979 survey. Among all families, 68 percent reported current business conditions were worse now compared with a year earlier, up from 50 percent in May 1979. * During the past 3 months, price expectations declined to 10.4 percent in August 1979 from 11.4 percent in May of this year. * Increases in unemployment were expected by 61 percent of all families in August 1979, up substantially from 40 percent in May. * In the August 1979 survey attitudes toward buying conditions for automobiles partially recovered from recent gas shortage induced losses. Although overall car buying attitudes were nearly identical in the May and August 1979 surveys, the underly­ ing reasons for these opinions have shifted dramatically. Buy-in-advance rationales were held by just 13 percent of all families in August 1979, down from 22 percent in May, and 28 percent in August 1978. Favorable evaluations of auto market conditions are now more often based on low prices and the availability of new fuel efficient models, with 27 percent giving these reasons in August 1979, up from 7 percent in August 1978. * * * The small rebound in consumer sentiment following the gasoline shortages has not reversed the dominant downward trend. Fears of spreading unemployment have now heightened, and threaten renewed declines. -2- Second Year of Decline The Index of Consumer Sentiment was 64.5 in the August 1979 survey, up 4.1 Index-points from one month earlier, but 3.6 Index-points below the May 1979 quarterly reading. The recent small improvement reflects only a partial recovery from the losses caused by gasoline shortages earlier in the summer. In August 1979, the ICS stood nearly 14 Index-points below year earlier readings, and 23 Index-points below August 1977. Overall, this survey marks the second year of decline, with several measures indicating record low levels of confidence. Among families with incomes of $15,000 or more, the Index was 59.1 in August 1979, up 3.4 Index-points from July, but still 3.0 Index-points below the May 1979 and 13.4 Index-points below August 1978. Among families with in­ comes of $20,000 or more, the Index reading was 70.0, down from 73.5 in May and 85.1 in August 1978. Charts A-C compare the extent of the recent decline in consumer sentiment with those occurring in 1969-70 and 1972-74. As shown in Chart A, the decline in the ICS, while not as steep as the previous declines, equals or exceeds prior declines in duration. Charts B and C show that the extent of decline recorded by the two subcomponents in the ICS have differed significantly. The current sub­ component of the ICS has exhibited only small recent declines in comparison to the prior periods. In contrast, the extent of decline in the forward or expecta­ tion subcomponent of the ICS has been as sharp as in the 1972-74 period. Con­ sequently, the smaller overall decline recorded by the ICS can be attributed to the partial maintenance of favorable current economic evaluations, mainly due to buy-in-advance price rationales. The overall patterns of decline continue to indicate that the current recession will be less severe than the 1974-75 recessi on. CHARTA INDEX OF CONSUMER SENTIMENT COMPARISON OF DECLINES 100 , ! 95 H 90 \ UJ 85 \ LU 80 1969:1-1970:4 N ^977:1-1979:3 \ UJ 75 1972:2-1974:4 LO 70 \ \ \ 65 / \ \ UJ \ 60 \ 50 I I I I L_ I I I I 1 I L 1 231156789 10 11 QUARTERS -4- CHARTB CURRENT COMPONENT OF INDEX COMPARISON OF DECLINES 110 105 100 — —/\ 95 --J.977:l-1979:3 LU O 90 0_ 1972:2-1974:4 85 80 UJ cc cc 75 3 1969:1-1970:4 o 70 65 60 I I I 1 I L J L 1 2 3 4 5 6 7 8 91011 QUARTERS CHARTC FORWARD COMPONENT OF IND^X COMPARISON OF DECLINES 100 95 90 85 80 75 1969:1-1970:4 70 \1977:1-1979:3 1972:2-1974:4 65 60 55 50 U5 HO J L J 1 1 L 4 5 6 7 8 9 10 1 1 QUARTERS -5- Marginal Improvement in Personal Finances Evaluations of personal finances posted some improvement in the August 1979 Survey over their May 1979 lowpoint. Among all families, 38 percent re­ ported that their current financial situation was worse than a year earlier, down from 40 percent in May, but above the 33 percent recorded in August 1978. Fewer respondents, in explaining changes in their financial situation, mentioned higher prices making their families worse off (40 percent in August 1979, com­ pared to 43 percent in May, and 35 percent recorded in August 1978). During the months of May through July 1979, food price increases averaged less than 5 per­ cent per month after posting double-digit increases during each of the previous five months. The sharp decline in food price increases which occurred last fall also temporarily produced more favorable financial evaluations. Although evaluations of current and expected changes in personal finances have recently improved, more families rated their current financial situation compared to a year ago as worse rather than better and more families expect their financial situation to worsen in the year ahead rather than improve. The improvement in expected changes in personal finances was concentrated among high- income families. Among families earning $15,000 or more, 27 percent reported that they expected their financial situation to improve, up from 23 percent in May, but below the 34 percent recorded in August 1978. Overall, just 13 percent of all families who report being better off financially than a year ago also expect to be better off financially in a year. Compared to year-ago readings, approximately the same proportion of families expect nominal income increases (63 percent in August 1979 versus 61 percent in August 1978). The distribution of expected increases, however, has shifted significantly, and is now concentrated in the 6-9% range. In August 1979, 25 percent of all families expected their incomes to increase by 10% or more, down from 31 percent in August 1978. Fewer families also reported expecting income increases in the range of 1 to 5% in August 1979 (12 percent) than in August 1978 (14 percent). The proportion of respondents who expect income increases in the range of 6 to 9% has risen from 6 percent in August 1978 to 17 percent in August 1979. Greater concentration of nominal income increases in the range of 6 to 9% have been accompanied by lower real income expectations due to double digit inflation. In August 1979, 61 percent of all families reported prices had gone up by more than their incomes over the past year (56 percent in August 1978), -6- and 50 percent expected prices to increase by more than their incomes during the year ahead (up from 45 percent in August 1978). Economic Slowdown Reported Compared to a year ago, more respondents have more frequently reported hearing unfavorable changes in business conditions in the August 1979 survey. In recent months, respondents have increasingly reported growing signs of a slowdown in the economy. Among all respondents, 68 percent reported that cur­ rent business conditions were now worse than a year earlier, up from 50 percent in May 1979, and 38 percent in August 1978. Expected changes in business con­ ditions also deteriorated sharply during the past year: 39 percent expected business conditions to worsen in the year ahead in August 1979, up from 37 percent in May and 26 percent in August 1978. Nearly one-third of all respon­ dents (31 percent) rated current business conditions as worse than a year ago and expected business conditions to worsen in the year ahead.