The latest survey results from the Ann Arbor-based Institute for Social Research shows that consumers continue to be pessimistic about the economy and predicts a slow recovery in 2010.
Survey Results for Dealers
Here at Auto Credit Express we want our dealers to be aware of the latest economic information available. But although economic data is certainly important, it’s also important to know what your customer’s attitude might be when they visit your showroom. As one of the oldest research organizations devoted to consumer attitudes, the Institute for Social Research, established in 1948, located in Ann Arbor and part of the University of Michigan, is one of the leading organizations studying the behavior and attitudes of the American Consumer.
Every month the ISR conducts a survey of consumers and as the current economic crisis has widened, the monthly reports have become more and more meaningful to car dealers. This month, the report contains some interesting information:
First and foremost: although there was a rise in consumer sentiment from last month, the increase was fairly small and should not be taken as an indicator that most consumers are willing to begin spending again. This is due primarily to the fact that most consumers see their incomes as declining along with the news of continued job losses across the employment spectrum.
Secondly, the ISR expects consumer spending to decline by about 1% in 2009 to be followed by a slow recovery in 2010.
Here is the report:
ANN ARBOR. Consumers reported that lower prices provided some needed relief, but continued job losses as well as income declines have kept consumers pessimistic about their future economic prospects. “The most significant change recorded in the December survey was the record plunge in inflation expectations,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Not only did a record number of consumers report that retailers were currently offering deeply discounted prices, but consumers expected the overall rate of inflation to fall significantly in the future. “One-in-four consumers expected outright declines in the overall price level, more than any time since the 1950's,” said Curtin. Although most consumers view the recent price declines as due to the recessionary downturn in spending, even longer term inflation expectations have decreased. While most consumers expect a rebound in prices when the economy recovers, they now anticipate a somewhat lower overall inflation rate to prevail in the future.
Given the depth of the recent declines in confidence, the relatively small December gain does not substantially change the negative outlook for spending during the year ahead. “Total consumer spending is expected to decline by about 1% during 2009, followed by an unusually slow recovery in 2010.” Curtin added that declines in pension accounts and home values, uncertainty about future job and income prospects, and continued restrictions on the availability of credit have made consumers much more interested in restoring their savings and reserve funds.
The Index of Consumer Sentiment was 60.1 in the December 2008 survey, up from 55.3 in November but substantially below last December’s 75.5 and the cyclical peak of 96.9 set in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 54.0 in December, barely above the 53.9 in November and well below last December’s 65.6 or the January 2007 cyclical peak of 87.6. All of December’s gain was in evaluations of current economic conditions, mainly due to price discounting. The Current Conditions Index rose to 69.5 in December from 55.3 in November.
Six-in-ten consumers, the largest proportion ever recorded, mentioned hearing news of rising unemployment in the December survey, up from one-in-four last December. Three-quarters of all consumers expected the recession to continue throughout the year ahead. Importantly, seven-in-ten expected the unemployment rate to rise in 2009. “Consumers anticipate a steeply rising unemployment rate, moving toward 8.5% by the end of 2009,” Curtin said.
The personal finances of consumers remained bleak, as the majority reported their situation had recently worsened. The fewest consumers in more than a half a century reported income gains in the December survey, and despite anticipating sharp declines in the rate of inflation, the majority still anticipated that their inflation-adjusted incomes would decline during the year ahead.
Price discounts on household durables and vehicles were cited by record numbers. There were only two surveys in more than 50 years that recorded a higher proportion of consumers who mentioned that deeply discounted prices were being offered. The appeal of lower prices, however, has been largely offset by widespread uncertainty among consumers about their future job and income prospects.
The Bottom Line
Here at Auto Credit Express, it appears that car dealers will have at least one more year of very challenging retail selling conditions. Consumers will be expecting heavy sales discounts and unless the deal is to their liking, many of them will be more interested in saving their money than spending it.