BLOG FOR SPECIAL FINANCE CAR DEALERS
Latest Survey Finds Lowest Consumer Outlook in 25 Years
The November Consumer Sentiment Survey from the University of Michigan finds consumers more pessimistic than they have been since 1980.
Falling gas prices do little for holiday spending plans
Here at Auto Credit Express, it looks like the current holiday season is going to be one of the lowest-spending ones in a long time. The latest report on consumer sentiment from the University of Michigan/Reuters survey shows that most Americans feel the current recession will be with us for a while. As a result, most consumers plan on cutting back on holiday spending while at the same time increasing their savings – many out of a fear that they may lose their jobs or see their incomes decrease as a result of such things as a loss of overtime or a cutback in the number of hours they will work.
Here is the latest report:
Consumers have expressed the most pessimistic economic outlook in the past quarter century just as the holiday shopping season gets underway. Consumer confidence fell in the last half of November due to mounting job losses, falling incomes, and the evaporation of household wealth. There have been only two surveys during the past half century that found consumers more pessimistic than now, in April and May of 1980—the all-time low was 51.7, a mere 3.6 Index-points below the current figure. Consumers were unanimous in their recognition that the economy was in recession, and nearly three-in-four expected the recession to deepen in the months ahead. The economic downturn was anticipated to prompt a stunning decline in the inflation rate: 39% of all consumers in November expected a zero inflation rate or outright deflation, up from just 5% six months ago. Even the plunge in gas prices was unable to overcome consumers’ heightened uncertainty about future job and income prospects. Although their reluctance to make discretionary purchases is primarily due to job and income uncertainty, consumers’ desire to increase their saving and reserve funds as well as stringent limitation of the availability of credit will also curtail spending. Overall, the data indicate the bleakest holiday spending season since 1980, with declines in consumer spending lasting until the 4th quarter of 2009. Total consumption expenditures are expected to fall by about -1.0% in 2009.
Few consumers expect the recession to end anytime soon as just 14% of all consumers in November expected the return of good times financially in the economy during the year ahead. When asked to identify what economic news they had heard, half of all consumers reported rising unemployment, up from one-in-three in October and one-in-four last November. An increase in the unemployment rate was expected by 69% of all consumers in November, a level that has only been exceeded in one prior survey—72% in 1980. The data indicate that consumers now expect the unemployment rate to be 8.5% by yearend 2009. Given these dismal job expectations, it is easy to understand their planned steep cutbacks in discretionary spending.
The expected year-ahead inflation rate plunged to 2.9%, down one percentage point from one month ago and nearly two percentage points from three months ago. Moreover, 39% expected no increase at all—22% expected a zero inflation rate and 17% expected deflation. Other than immediately following 9/11, the last time such a collapse was expected was at the depth of the 1980’s recession. Long term inflation expectations did not change from one-month or one-year ago: an annual increase of 2.9% over the next five years was anticipated, suggesting no growing concern that persistent deflation will result.
Despite the substantial boost in spending power provided by falling gas prices, more families reported that their finances had worsened in November than ever before in the long history of the surveys—61%. When asked to explain how their finances had changed, income increases were mentioned by the fewest consumers in more than a half century—by just 15%. Real income expectations improved over the lows recorded at mid year due to the expected declines in the inflation rate, but still remained decidedly negative due to lower nominal income expectations. Overall, 44% expected declining real incomes.
The November survey recorded the most negative buying plans in the past quarter century for appliances, furniture, home electronics and other household durables; indeed, there was only one other survey conducted in 1980 that recorded less favorable buying plans. When asked to explain their views, more consumers than ever before (47%) mentioned their uncertainty about future job and income prospects as the primary reason to postpone planned purchases. Consumers viewed vehicle buying conditions from two fundamentally different vantage points: while unusually deep price discounts on new vehicles were anticipated by the majority of consumers in November, an all-time record number of consumers also stated that their uncertainty about future job and income prospects meant that they would not even consider purchasing a vehicle.
The Bottom Line
The last line in the report has to be especially chilling for car dealers. Realizing the perception that many shoppers will have, it means that those customers that walk into your showroom in the next few weeks need to be viewed with extra importance. If they are seriously looking at purchasing, they need to see the fairest deal possible right from the start. If they leave your showroom, you may not get a second chance.