Economy

Stimulus Not Yet Improving Consumer Mood, Spending

by Dennis Jacobe, Chief Economist

Gallup’s five attitudinal economic measures show little or no improvement

PRINCETON, NJ -- Gallup's attitudinal economic measures show little if any improvement since President Obama signed historic fiscal stimulus legislation on Feb. 17. The Consumer Mood and Consumer Spending measures declined slightly last week, while the Net New Hiring and Standard of Living measures improved slightly; Financial Worry was unchanged.

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Consumer Mood Not Improving

While it is far too early to expect the new fiscal stimulus package to have had a significant financial impact on the economy, three weeks would seem to be -- at least in theory -- long enough for this kind of unprecedented effort to have had a significant effect on overall consumer psychology. However, no such positive impact on consumer psychology seems to have taken place during that time, with Gallup's Consumer Mood Index now at -116. This is 5 points worse than the prior week's reading, 3 points worse than during the week of Feb. 9-15 -- just before the signing of the stimulus bill -- and 25 points worse than it was during the same week a year ago.

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Consumer Spending Down 34% From One Year Ago

Gallup's Consumer Spending Index shows Americans' self-reported spending in stores, restaurants, gas stations, and online averaging $61 per day last week -- down from $66 the prior week and $68 during the week of Feb. 9-15. Consumer spending is down 34% from $92 per day a year ago. Year-over-year consumer spending was also down 34% in January and 40% in February. While the percentage decline in average consumer spending in early March is not as bad as February's decline, this is not the result of an improvement in current consumer spending; instead, it reflects the reduced spending levels of a year ago as gas prices increased and consumer confidence plunged. (Gallup's Consumer Spending Index excludes the purchase of homes, motor vehicles, and normal household bills.)

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Net New Hiring Improves Slightly

Gallup's Net New Hiring measure improved slightly to -4 last week from -6 the prior week and -5 during the week prior to the signing of the stimulus bill. Still, Gallup's most recent jobs measure suggests new jobless claims will exceed 600,000 again when the government reports them on Thursday. Net New Hiring stood at 23 a year ago.

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Standard of Living Improves Slightly

Gallup's Standard of Living Index also improved slightly, to 38 last week from 34 the prior week and 34 during the week of Feb. 9-15. Of Gallup's five key attitudinal economic measures, the Standard of Living Index is the only one that may have been positively affected by the recent passage of the stimulus bill. This may reflect anticipation of the benefits associated with the bill's focus on expanding the social safety net. It is also possible that the Standard of Living Index is more likely to reflect shifts in political mood, with Democrats becoming more positive as President Obama has taken office. Still, Gallup's Standard of Living Index is down from early January 2009, and is far below the 72 of a year ago.

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Financial Worry Unchanged

The percentage of consumers saying they worried about money "yesterday" was unchanged last week, as Gallup's Financial Worry Index remained at 38 -- essentially the same as the prior two weeks and slightly worse than the 36 of the week before the stimulus was signed. The Index stood at 33 a year ago.

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Commentary

It would be unfair to suggest that the fiscal stimulus legislation could have any real economic impact in the few weeks since it was signed by the president. In fact, consumers won't see the modest increase in their take-home pay provided by this bill until April. For that matter, much of the real spending and job creation in the bill will not take place until 2010 and 2011.

On the other hand, such a major stimulus effort might be expected to have a major positive impact on consumer psychology. If consumers are convinced that these and other recent government efforts to fix the economy are going to work, then there should theoretically be a discernible pick-up in consumer mood and, in turn, a measurable improvement in self-reported consumer spending. A big part of the economic problem right now is consumers' fear and unwillingness to spend, given current economic uncertainties.

One lesson that might be drawn from the lack of consumer response to recent government efforts to stimulate the economy is that consumer psychology will not improve until the financial sector is fixed and consumer credit again begins to flow on something like a normal basis. Whatever is done in this regard, it needs to be so substantial that it re-creates financial stability; another partial measure is likely to simply make things even worse.

A second lesson that might be taken from this recent experience could be extremely important if another major stimulus effort is needed. In order to have a major psychological impact on consumers, business, and investors, any stimulus plan needs to have a wide-ranging political and economic consensus behind it. General unanimity that the effort will work and will get the economy going is essential -- from a behavioral economic perspective -- to creating a positive impact on consumer psychology.

During the next several weeks, Gallup Poll Daily monitoring of these five key attitudinal economic measures is likely to provide added and early insight into whether -- and to what degree -- recent historic government efforts to stimulate the economy are beginning to take hold.

Survey Methods

Gallup's attitudinal economic measures are based on aggregated interviews with a nationally representative sample of more than 12,000 adults aged 18 or older each month. For results based on these samples, the maximum margin of sampling error is ±1 percentage point.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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