U.S. investors are fairly evenly divided in how they describe current economic conditions, according to the November Index of Investor Optimism survey -- a joint effort of UBS and The Gallup Organization*. Thirty-five percent of investors say that the economy is now in a recovery (30%) or a sustained expansion (5%). On the other hand, 42% say that the U.S. economy is in a slowdown and 23% say it is in a recession.
Given these perceptions of the current economy, what do investors intend to do over the next 6 months? Will they spend and borrow more while saving less as they might do during an economic recovery, or will they do just the opposite?
Investors Plan to Spend Less Overall
More investors say they plan to spend less overall over the next 6 months (22%) than say they plan to spend more (16%). Still, this difference of 6 percentage points is less than the difference of 13 percentage points in investor spending intentions measured in November 2001.
Investors Plan to Spend Less on Major Items
More investors (36%) also say they plan to spend less on major purchases over the next 6 months than say they plan to spend more (16%). This 20 percentage-point difference, however, is larger than it was last year at this time (-17).
Investors Also Plan to Borrow Less
Almost half of all investors (49%) say they plan to borrow less and thus lower their total amount of outstanding debt over the next 6 months. In sharp contrast, only 8% of all investors say they intend to increase the amount of debt they have in the months ahead. This difference of 41 percentage points is up four points over last year.
Investors Plan to Save More
Consistent with the intentions of many investors to spend and borrow less, many more investors say they intend to save more over the next 6 months (37%) than say they intend to save less (9%); this difference is up six percentage points since last year.
Still, Investors Expect Their Incomes to Increase
Although investors intend to improve their personal balance sheets by spending and borrowing less and saving more in the months ahead, they are not doing so because they are worried about their incomes. Many more investors say they expect their incomes to increase over the next 6 months (39%) than say they expect their incomes to decrease (6%). This difference (33 percentage points) has increased two points since this time last year.
And, Investors Plan to Travel More
Twenty-two percent of investors say they intend to increase the amount they travel over the next 6 months, compared to 17% who say they intend to decrease it. This difference five percentage points is a total reversal from last year's difference of -5 points, and is probably a reflection of the fact that some of the fear caused by Sept. 11 has worn off.
Key Points
In November 2001, many more investors thought the economy was in a recession (33%) or a slowdown (54%) than felt it was in a recovery (8%) or an expansion (4%). Although investor and consumer expectations were rapidly improving at that time, investor intentions were consistent with a continued economic slowdown or worse. Investors told Gallup that they planned to spend and borrow less while saving more, even though they expected their incomes to increase.
Investors voice essentially the same intentions this year. They say they plan to spend less -- particularly on major purchases -- while also borrowing less and saving more over the next 6 months. Even though many investors continue to expect income increases during the months ahead, their stated intentions reflect the actions of those anticipating a continued economic slowdown.
Of course, the Dow has just risen for the eighth consecutive week, and economic prognosticators found the latest economic reports encouraging. Now that we are in the midst of the holiday spending season, let's hope that investor and consumer optimism surge upward again, as they did last year at this time.
*Investor results are based on telephone interviews with 1,001 investors, aged 18 and older, conducted Nov. 1-17, 2002. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ±3%.
