Consumer Confidence Up
by Benard Goitein, Director, Center for Business and Economic Research
The June-July 2003 survey of households in the Peoria Metropolitan Statistical Area (MSA; Peoria, Tazewell and Woodford counties) shows the local Index of Consumer Sentiment (ICS) at 96.7, up 12.5 points from the February-March 2003 survey score of 84.2. The data show that Peoria MSA families anticipate a recovery from the recession in the year ahead, but do not expect the recovery to be strong enough to reduce area unemployment.
ECONOMIC ATTITUDES - OPTIMISM FOR FUTURE:
The majority of families (56%) expects positive business conditions in the year ahead, a figure over twice the 26% with negative expectations. This expectation for an end to the recession signals a reversal of the beliefs expressed earlier this year, when a majority was pessimistic for business conditions in the year ahead, and only about one in three had favorable expectations. The good business conditions ahead will include continued low interest rates and continued low levels of inflation, with the median rate of inflation forecasted of 2.50%. The good times for business will preclude further increases in unemployment in the next 12 months, argue 71% of respondents (up from 58%), but are not expected to produce a drop in unemployment, with only 15% that expect such improvements, virtually unchanged from 14% in the previous survey.
Fifty percent of area families exclude a recession for at least the next five years (up from 42% in the previous survey), versus 45% (down from 53% in the previous survey) who are still pessimistic for the long-term health of the economy. The implementation of the new federal tax cut package is not seen as contributing to the expected improvement for the economy, with only about one fourth (26%) that think the new federal tax cut package will help the economy.
CURRENT CONDITIONS MEASURES TURN UPWARDS:
The percentage rating local economic conditions "poor" fell from 27% early in the year to 16% in the present survey, so that nearly twice as many families (30%) rate current local economic conditions favorably as unfavorably. These results reverse the pattern found earlier this year, when more families had rated local conditions "poor" than had rated conditions "good" or "excellent." The government gets low marks for its handling of the economy, with more families that rate government economic policy "poor" (25%) than rate government economic policies favorably (19%) showed little change.
FAMILY FINANCES - FINANCIAL CONDITION IMPROVING:
Area family finances are on the mend, with nearly half (47%) stating that they are "better off," versus about one in four (27%) who said that they are "worse off." Among those with improved finances, most (70%) credited their incomes, with 46% reporting good pay, and eight percent who found a job. While 16% explained their improved condition resulted from cutbacks in their spending, 13% said that their improved finances were a result of reducing their debt load (whether through debt reduction or debt refinancing). Among families reporting declining finances, 25% complained of poor performance of their investments, 19% had lost their jobs, 19% explained their decline as resulting from reduced income from their jobs, and 16% blamed higher prices.
REVIEW AND OUTLOOK:
Expectations for economic growth are boosting consumer confidence. Spending increases based on the rising confidence in the economy will be limited until the growth is expected to be strong enough to start creating growth in employment. Thus, while most area families expect to benefit financially from the 2003 feral tax cuts, they are cautious in their spending plans, and few plan new purchases with these funds. The combination of expectations of rising home values and low interest rates points to continued interest in home equity based financing and refinancing. These factors will also continue to support local home sales. Spending increases for cars and major durable goods will be limited to vendors that offer discounted prices and the opportunity to rely on low cost financing.
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