Economy

Consumer Mood Surges, but Spending Doesn’t

by Dennis Jacobe, Chief Economist

Consumer confidence at highest level since mid-September 2008

PRINCETON, NJ -- Gallup's Consumer Mood Index improved by 31 points over the past 10 days, with almost daily improvement on a cumulative basis since March 9. The Consumer Spending Index, however, has not shown similar increases, even when compared to a year ago.

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Surge in Consumer Mood

Ten days ago, Gallup's Consumer Mood Index was at its low point for the month, the stock market had hit a 12-year low, and pessimism was everywhere. Since then, the stock market has surged nearly 1,000 points and consumer mood has improved by 31 points, reaching -89 on March 18 -- up from -120 on March 9. The Consumer Mood Index is now at its highest level since the financial crisis began in mid-September, and 14 points better than it was at the same time a year ago.

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Consumer Spending Modest Response at Best

Gallup's Consumer Spending Index shows that Americans' self-reported spending in stores, restaurants, gas stations, and online continued to decline for several days even as the consumer mood improved, with consumer spending dropping from an average of $68 per day on March 9 to a new 2008-2009 low of $45 per day on March 13. Over the next several days, consumer spending increased steadily to $66 per day on March 16 before falling back to $50 on March 18.

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In order to adjust for seasonal differences, Gallup's attitudinal spending measure can be compared to spending on the same day a year ago and adjusted for the day of the week. The resulting daily measurements are volatile and show only a modest improvement in spending, if any, during recent days. While January spending was down 34% and February spending fell 40% from a year ago, comparables for March 2009 are also complicated by the drop in Gallup's Consumer Spending Index of March 2008 that may have been affected by the collapse of Bear Stearns.

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Commentary

Over the past 10 days, the Obama economic team and Federal Reserve Chairman Ben Bernanke have orchestrated a remarkable change in consumer and investor psychology. It now appears that, for the time being at least, this effort has stopped what was an economically dangerous downward spiral in consumer and investor confidence.

The unprecedented actions of the Fed on Wednesday, as it announced that it will add more than another $1 trillion to the credit markets this year, are a sign of the serious nature of the consumer and business credit crunch as well as the determination of monetary authorities to do whatever is necessary to get credit flowing once more. These actions should not only continue to build on the positive psychological momentum of the past 10 days but also provide real economic substance, as the Fed has now effectively replaced -- at least in part -- the financial functions of the now virtually moribund secondary market for consumer and business loans.

Still, there is a long way to go between halting the downward spiral of the economy and achieving anything resembling normalcy. The sharp improvement in Gallup's Consumer Mood Index reflects Americans' increasing confidence and improved expectations for the overall economy in the weeks and months ahead. The seemingly modest improvement, if any, in Gallup's Consumer Spending Index suggests that the surge in consumers' mood about the overall economy has yet to translate into a meaningful change in individual spending behavior. Individual consumers may simply want to become more confident about their own personal economic situations before they begin spending once more.

In this regard, a key measurement of economic success going forward will be whether consumers can shake off continuing job losses and their financial fears of the past many months to begin spending again. Gallup's economic indexes provide an immediate and unique ability to measure the success, or lack thereof, of efforts to improve consumers' mood and spending in the days and weeks ahead.

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 points.

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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