Economy

Weekly Economic Wrap: Mood Hits 16-Month High

Consumers’ mood surged last week, hitting highest point since first week of January 2008

PRINCETON, NJ -- The week leading up to Mother's Day was a good one for the U.S. economy, with not only another surge in consumers' overall economic mood but also slight increases in consumer spending and employee job-market perceptions. The improving consumer psychology may finally be producing some modest spending gains, but it will take a few weeks before it is clear whether this improvement was a pre-Mother's Day blip or something more lasting.

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Gallup Consumer Mood Index
(Maximum possible value of 200; minimum possible value of -200)

The Gallup Consumer Mood Index surged to -50 last week -- a new high for the year, almost matching the Index's best weekly level since its inception in January 2008, and totally erasing the brief pullback in mood at the end of last month. The Consumer Mood Index has improved from -75 a month ago and -103 a year ago. While the Index indicates that consumers as a whole remain negative about the U.S. economy and its future direction, the overall trend is one of astonishing improvement since early March -- and is virtually parallel to a similar surge in the U.S. equities markets.

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The Consumer Mood Index is based on Americans' answers to two questions regarding current U.S. economic conditions and the direction of the economy. Consumers' negativity has diminished significantly on both dimensions compared with early March; however, this has been most pronounced with respect to the economy's direction.

Consumer perceptions that the economy is getting worse rather than better continued to moderate, improving from a net -59 in early March to a net -16 this past week. Perceptions of current economic conditions remain much more negative than positive, with only 12% calling them "excellent" or "good" versus 46% rating them "poor," resulting in a net current conditions score of -34. Although the ratings of the current U.S. economy remain negative, they are the best such ratings since the financial crisis of mid-September 2008; the economic outlook numbers are the most upbeat since the measure's inception.

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Gallup Monitor of Consumer Spending
(Unlimited maximum possible value; minimum possible value of $0)

Consumer spending increased last week, as Americans reported spending an average of $63 per day in stores, restaurants, gas stations, and online. This is up from the $56 of the previous two weeks and the $55 average of a month ago.

Adjusting for seasonal effects by using year-ago comparables suggests that even as the consumer mood surges, consumer spending appears to be stabilizing at levels that are far lower than those of a year ago. Consumer spending last week was down 45% from the same week a year ago (when the average was $114). That is slightly better than the 53% year-to-year decline from the previous week but about the same as the 43% such decline of the week before that. (Gallup's spending data are based on Americans' self-reports of the total amount of money they spent the prior day on purchases other than a home, a motor vehicle, or their normal monthly bills.)

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Gallup Net New Hiring Index
(Maximum possible value of 100; minimum possible value of -100)

Employees' reports on hiring and firing patterns at their own workplaces showed a slight uptick last week, as Gallup's Net New Hiring Index for the week ending May 10 was -3. That is a slight improvement over the -5 of the previous week but not as good as the -1 of mid- to late April. Still, as was shown in the government's unemployment report last week, these minor improvements in the jobs market may not be reflected in the unemployment rate. Such positive signs often bring people who may have been discouraged and had stopped looking for work into the labor force again -- thus increasing the unemployment rate numbers.

The improvement in the Gallup Net New Hiring Index score to -3 for last week from -5 the week before resulted from an increase from 22% to 24% in the percentage of full- and part-time employees saying their employers were hiring people and expanding the number of employees in their workforces, while the percentage reporting that their companies were letting people go remained at 27%.

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Gallup Standard of Living Index
(Maximum possible value of 200; minimum possible value of -200)

The Gallup Standard of Living Index reached 59 during the past week -- its highest level in more than a year, and up from 57 a month ago and 46 a year ago.

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The Standard of Living Index is based on two questions -- one asking about respondents' satisfaction with their current standard of living and the other about the perceived direction of their standard of living. This past week, more consumers once again said their standard of living is getting better (44%) than said it is getting worse (35%). At the same time, 75% of consumers said they were satisfied with their standard of living and 25% were dissatisfied, virtually the same as the previous week's results.

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Gallup Consumer Worry Index
(Maximum possible value of 100; minimum possible value of 0)

The Gallup Consumer Worry Index is at 33 for the week ending May 10 -- essentially the same as the readings for the previous several weeks but slightly more optimistic than the 35 of a month ago and better than the 37 of a year ago.

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What's So Bad About Feeling Good?

Gallup's Consumer Mood Index shows that Americans are feeling much better about the outlook for the U.S. economy. Some of this is coming from the surge in the stock market since early March with the attendant increase in investor wealth and the contagious enthusiasm of the Wall Street bulls. Further, the so-called banking stress tests seem to have gone over very well on Wall Street and even the number of jobs lost in April was well below the 630,000 expected.

Looking ahead, the U.S. economy faces some major challenges. The potential bankruptcy of General Motors on top of Chrysler's bankruptcy means not only a potential loss of additional manufacturing jobs but also the possible closure of thousands of local dealerships in many towns across the country. There are problems associated with commercial real estate, credit cards, and the flow of credit. Most importantly, there are many businesses small and large that are still trying to adjust their operations to the sharp and prolonged downturn in consumer spending of the past many months.

In order to get past these challenges and maintain the improvement in consumer mood of the past couple of months, businesses need to start creating more jobs and consumers need to begin increasing their spending. Of course, the comparisons to year-ago spending are going to be difficult for the next couple of months because the one-time payments to taxpayers that were part of last year's stimulus plan far exceed the one-time payments in this year's stimulus package.

Still, consumer psychology has always played an important part in how consumers and businesses behave. In this regard, one can hope that the modest improvement last week in consumer spending and new job creation signals a change in behavior in response to the surging consumer mood of the past couple of months, and not just a Mother's Day blip.

Survey Methods

For Gallup Poll Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. Gallup's consumer series includes the Gallup Consumer Mood Index (evaluating public perceptions about the U.S. economy), the Gallup Monitor of Consumer Spending (a measure of how much money Americans are spending each day on mainly retail purchases), the Gallup Net New Hiring Index (a measure of employee perceptions of hiring conditions where they work), the Gallup Standard of Living Index (evaluating the public's perceptions about its own standard of living), and the Gallup Consumer Worry Index (a measure of the degree to which Americans are worried about their finances).

The Standard of Living Index is based on questions asked of all respondents; the Gallup Consumer Mood Index, the Gallup Monitor of Consumer Spending, and the Gallup Consumer Worry Index are based on random half-samples of approximately 500 national adults, aged 18 and older, each day. The Gallup Net New Hiring Index is based on a sample of approximately 250 current full- and part-time employees each day.

The sample sizes and associated margins of error for weekly results for the week of May 4-10 are:

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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.

Gallup http://www.gallup.com/poll/118324/Weekly-Economic-Wrap-Mood-Hits-16-Month-High.aspx Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A +1 202.715.3030