Economy

Weekly Economic Wrap: Pre-Memorial Day Spending Uptick

by Dennis Jacobe, Chief Economist

Consumers’ mood levels off after early May surge

PRINCETON, NJ -- Even in an extremely weak economy, Gallup's Monitor of Consumer Spending reveals that consumers increased their spending in the week leading up to Memorial Day -- perhaps taking advantage of pre-holiday sales and stocking up on picnic supplies. At the same time, consumers' mood has leveled off and the Net New Hiring Index has returned to negative territory -- not the best economic conditions to test whether the widely expected bankruptcy of General Motors will take the economy down another notch in the weeks ahead.

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

In early May, Gallup's Consumer Mood Index hit a new high for the year (-50) and one of its best levels since inception, presaging Tuesday's surge in the Conference Board's Consumer Confidence Index. Since then, the Index has leveled off to -58 over the past two weeks. Consumers' mood -- as the Index indicates -- remains negative overall, yet it is only eight points worse than its most optimistic 2009 weekly average and is 45 points better than it was a year ago (-103). It may be that recent signs that the economy's rate of decline has eased -- the so-called "green shoots" -- can improve consumers' mood by only so much, and that it will take signs of real economic progress before consumers become substantially more optimistic than they are right now.

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The Consumer Mood Index is based on Americans' answers to two questions regarding current U.S. economic conditions and the economy's direction. Consumers remain somewhat negative along both dimensions, but much less so than in early March or even a year ago.

Despite the sharp improvement in consumer optimism since early March, perceptions of current economic conditions remain much more negative than positive. Only 10% rate the economy as "excellent" or "good" while 47% rate it as "poor," providing a net current conditions score of -37 that is six points better than a month ago. Similarly, 57% of consumers perceive that the economy is getting worse, compared to only 36% who think it is getting better, for a net outlook score of -21, five points better than a month ago.

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

Americans reported spending an average of $73 per day in stores, restaurants, gas stations, and online last week. This is up 20% from the $61 of the prior week and up 30% from the $56 average of a month ago. Still, consumer spending last week is down 24% from the same week a year ago, when the average was $96. (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)

Last week, 23% of full- and part-time employees reported that their companies were hiring while 26% reported job reductions. As a result, Gallup's Net New Hiring Index for the week ending May 24 is at -3. This is essentially the same as a month ago (-1) and 24 points worse than a year ago, but represents a retreat to negative territory after a net positive score of +3 the prior week. It also suggests that the deterioration in the job market continues -- if at a slightly more moderate rate.

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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 declined to 55 during the past week from 57 the prior week. The Index is not much different from the 53 of a month ago but is up from 44 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. More consumers continue to say their standard of living is getting better (43%) than say it is getting worse (36%), and more say they are satisfied (74%) than dissatisfied (26%) with their standard of living.

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

The Gallup Consumer Worry Index worsened slightly to 34 for the week ending May 24 -- identical to the reading of a month ago and essentially the same as the 35 of a year ago.

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Commentary

While tempting, it is hard to get too excited about last week's uptick in consumer spending. It is not a surprise that consumers spent more in the week prior to Memorial Day, and the magnitude of the increase may be more a reflection of the overall low level of consumer spending during recent weeks than an indication of a sharp improvement. While last week's 24% decline from a year ago is much moderated from the 40% declines of recent weeks, consumer spending is relatively volatile and is complicated by holiday periods on a weekly basis. For example, last week's year-over-year decline is based on a relatively weak comparable for spending last year. Based on the $131 comparable in 2008 for the week ahead, the $73-per-day spending of last week would be down 44%.

Similarly, last week's decline in Gallup's Net New Hiring Index is not surprising. Given current economic conditions, it is hard to see how there could be a sharp improvement in job-market conditions in the near term, particularly in light of the Chrysler bankruptcy and the expectation that General Motors will follow suit. In this context, any sign of moderation in the current rate of U.S. job losses would clearly be good news.

On the other hand, there is no reason to get particularly excited about Tuesday's announcement of a surge in the Consumer Confidence Index. That is old news as compared to Gallup's Consumer Mood Index. Further, the surge in confidence that took place in early May has yet to translate into significantly increased consumer spending -- and that is what is really needed for economic recovery.

At this point, Gallup's attitudinal economic indicators seem to suggest some stabilization in consumers' mood, in consumer spending, and in the rate of deterioration in the job market. Whether this situation can be maintained -- and then improved on -- may be tested in the next few weeks. That is, the overall negative impact of the failure of two domestic car manufacturers, combined with the continued deterioration in housing prices, increasing gas prices, a pullback in vacation travel, and what may be the "new normal" in consumer spending, may not yet be fully appreciated.

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 18-24 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.

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