Middle Tennessee Consumer Confidence Index – December 2008
Middle Tennessee Consumer Confidence Index
December 4, 2008
The Office of Consumer Research
at Middle Tennessee State University
Director -- Timothy R. Graeff, Ph.D.
"Overall Consumer Confidence Holds
Steady, But Concerns Persist”
Confidence among Middle Tennessee consumers held relatively steady, inching up
ever so slightly to 4 from -1 in October. This was the result of two offsetting trends. As
consumers’ perceptions of the current economy worsen, they also believe that now is a
good time to make large purchases because of the good deals being offered by retailers.
The current poll of 501 randomly selected adult residents of Davidson, Rutherford and
Williamson counties was conducted the evenings of Monday, December 1 and Tuesday,
December 2.
The Middle Tennessee Consumer Confidence Index and Components
Overall Cons. Conf. Index
Current Situation Index
Future Expectations Index
Purchasing Situation Index
Dec
‘06
242
102
58
82
Feb
‘07
319
132
89
98
Apr May Sept Nov
‘07 ‘07 ‘07 ‘07
278 206 242 225
120 94 105 88
83
55
79
75
75
57
58
62
Feb
‘08
158
49
53
56
Apr May Oct
‘08 ‘08 ‘08
44
30
1
-15 -19 -57
24
11
59
35
38
-1
Dec
‘08
41
-109
56
57
At first glance this increase (albeit slight) in overall confidence is a welcome change
from the steady decreases in overall confidence that have been seen since September of
last year. However, there are two sides to this story.
Current and Future Economic Situation
The current situation index continued its slide, decreasing to -109 from -57 in October.
This precipitous drop is due to consumers’ negative views of the current economy. A
score of zero would indicate that the percentage of consumers who hold negative views
of the economy is equal to the percentage of consumers who hold positive views of the
economy. The current negative score indicates that the number of consumers who hold
negative views of the economy outnumber those who hold positive views of the
1
The score is computed by adding the percentage of favorable responses to each question and subtracting
the percentage of negative responses to each question.
1
Middle Tennessee Consumer Confidence Index – December 2008
economy. News of business failures, concerns about the future of the job market, fears of
layoffs, reports of budget cuts at state and local levels, worries about further negative
effects of the credit crunch, and decreases in the stock market have all contributed to
consumers’ overall gloomy view of the current American economy.
Only five percent of local consumers said that business conditions in the country as a
whole are “good.” Further, almost half (48 percent) said that business conditions in the
country as a whole are “bad.” The fact that these surveys were conducted the same week
that the media reported that the U.S. economy is officially in a recession could have also
contributed to the depressed mood of consumers toward the economy. Views of the local
economy are also negative. Only 18 percent of consumers said that business conditions
in the Middle Tennessee area are “good.”
The job market remains a concern for many consumers. The percent saying that jobs
in Middle Tennessee are “easy to find” dropped to 4 from 10. Further, the percent saying
that jobs are “hard to find” rose to 43 from 33.
In comparison, the future expectations index held relatively steady, decreasing only
slightly to 56, from 59 in October. Even though consumers recognize that the current
economy is in trouble, they still hold out a modest amount of hope that things will turn
around next year. And, businesses and retailers would prefer that consumers believe that
a better economy lies in the future, than in the past.
Purchasing Situation Index
In contrast to the decreases in the current situation index, the purchasing situation
index rose sharply to 57 from -1 in October. This increase helped to offset the drop in the
current situation index. This might appear to be a positive sign for the economy, given
that consumer spending makes up two-thirds of the American economy. If consumers
think that now is a good time to make large purchases, and if they become more willing
to spend money, this increased spending will help to grow the economy. However, the
reasons behind consumers’ perceptions that now is a good time to make large purchases
must also be considered.
So, what is the engine that is driving perceptions among consumers that now is a good
time to make large purchases? Unfortunately, the positive perceptions about purchasing
are being driven mostly by hopes of getting a good deal as retailers increasingly offer
deep discounts to entice consumers into their stores and try to reduce inventory.
Inventory clearance sales, buy-one-get-one-free offers, and other deep discount offers are
driving consumers’ perception that now is the time when they can get a good deal from
desperate retailers.
Unfortunately, this cannot last over the long term. Businesses cannot continue to offer
deep discounts while at the same time trying to remain profitable. Long term economic
growth from consumer spending must be driven by a sense of comfort among consumers,
and not a sense of deal-seeking. Long term economic growth must be supported by
consumer spending that is driven by consumers who feel comfortable that the overall
economy is stable, that their job is secure, that their future financial situation will remain
2
Middle Tennessee Consumer Confidence Index – December 2008
steady or improve, and that incomes and investments will rise in the future. However,
spending that is based solely on short term deals and price discounts cannot lead to long
term economic growth. Retailers cannot continue to discount prices and hope to remain
profitable. Decreased profits for retailers can result in further layoffs, further erosions in
consumer confidence, and even greater desperation on the part of retailers. So, even
though the year long decrease in overall consumer confidence has subsided for now, a
solid foundation of long term economic growth driven by consumer spending is still a
long way off.
The Psychology of Consumers
The psychology of consumers can have dramatic effects on the future of the economy.
Consumer spending makes up two-thirds of the American economy. Decreases in
consumer confidence that translate into reduced purchasing patterns can have significant
negative effects on the economy. Conversely, increases in consumer confidence that
translate into accelerated consumer spending can have significant positive effects on the
economy.
3
Middle Tennessee Consumer Confidence Index – December 2008
Comparison To The Nation:
Compared to consumers across the country as a whole, local consumers have slightly
more negative perceptions of the overall American economy and the current job market.
However, local consumers are significantly more optimistic about the future. Most
noticeably, local consumers are more optimistic about the future of the overall American
economy, are more optimistic about the future of the job market, and are more optimistic
about their personal financial situation in the next year. The table below illustrates some
of these differences in consumers’ responses to selected survey questions.
Business conditions in the U.S. are good.
Six months from now, business conditions in the U.S. will be better.
Jobs are easy to find (plentiful).
Six months from now, there will be more job openings.
In 12 months my personal financial situation (income) will be better.
Nation
(%)
MT
(%)
102
11
9
9
13
5
38
4
21
37
Christmas Spending
Depressed consumer confidence does not bode well for retailers as we enter into the
Christmas and holiday shopping season. When asked about their expected Christmas
spending, 45 percent of local consumers plan to spend less than they spent last year.
Compared to last year, fewer consumers plan to increase their Christmas spending, and
more consumers plan to decrease their Christmas spending.
Source: November 25, 2008 Consumer Confidence Report – The Conference Board (www.conferenceboard.com). The next release from the Conference Board is scheduled for December 30, 2008.
2
4
Middle Tennessee Consumer Confidence Index – December 2008
Stock Market Declines and Consumer Spending:
Consumers were also asked whether or not they have reduced (or plan to reduce) their
spending due to the recent decreases in the stock market. Even though the long term
nature of the stock market means that fluctuations in the market value of investments
should not have a dramatic effect on the daily purchase and spending patterns of
consumers, a significant number of Middle Tennessee residents reported that they have
(or will) reduce their spending because of the recent downturn in the stock market.
Almost half reported reduced spending on travel (49%) and entertainment (48%). Many
consumers also reported reduced spending on home improvement (45%) and eating out
(44%). Even though consumers might not need to liquidate their investments for many
years, reductions in the value of their investments and savings can make consumers feel
less wealthy in the short term.
5
Middle Tennessee Consumer Confidence Index – December 2008
Consumers were also asked to estimate the amount of money they expect to spend on
Christmas and Holiday gifts this year. Less than half (46%) of consumers expect to
spend more than $500. However, this compares favorably to the 27 percent of consumers
across the country as a whole who plan to spend more than $500 (Conference Board
Survey November 21, 2008). The recent downturn in the economy has not dampened the
spending spirits of all consumers. One in six (17%) expect to spend more than $1,000 on
Christmas and Holiday gifts this year.
6
Middle Tennessee Consumer Confidence Index – December 2008
Changes in Consumers’ Perceptions of the Economy
The table below shows how consumers’ responses to selected survey questions have
changed since October 2008.
December
2008
(%)
Change from
October 2008
Business conditions in the U.S. are Good.
5
2%
Six months from now, business conditions in the U.S. will
be Better.
38
2%
Business conditions in Middle Tennessee are Good.
18
11%
Six months from now, business conditions in Middle
Tennessee will be Better.
32
2%
6%
Jobs in Middle Tennessee are Easy To Find.
4
Six months from now there will be More Job Openings in
Middle Tennessee
21
2%
5%
I am Better Off Financially than I was one year ago.
13
2%
12 months from now I will be Better Off Financially than
I am today.
37
Now is a Good Time To Make Large Purchases.
34
Now is a Good Time To Buy A Home.
63
Now is a Good Time To Buy A Car.
44
17%
6%
10%
7
Middle Tennessee Consumer Confidence Index – December 2008
About the Survey:
The results reported here are based on telephone interviews with 501 randomly
selected adult residents, 18 years and older, from Davidson, Rutherford, and Williamson
counties. Phone interviews were conducted between 4:30 pm and 8:30 pm on Monday,
December 1 and Tuesday, December 2. With a sample of 501 people, we can say with
95% confidence that the amount of survey error due to taking a random sample instead of
surveying all members of the population is ± 4.4%. Other factors such as problems with
question wording and question interpretation can also introduce additional bias or error
into the results. Results from the Middle Tennessee consumer confidence surveys can be
compared to national consumer confidence surveys published monthly by the Conference
Board (www.conference-board.org). This report is also available on the Office of
Consumer Research web page (www.mtsu.edu/~consumer).
The Consumer Confidence Index is based on all 11 survey questions outlined below.
The score is computed by adding the percentage of positive responses to each question,
and subtracting the percentage of negative responses. The Present Situation Index is
based on questions 1, 3, 5, and 7 (see the following tables of results). The Future
Expectations Index is based on questions 2, 4, 6, and 8. The Purchasing Index is based
on questions 9, 10, and 11.
About the Office of Consumer Research at MTSU:
In 2000, the Management and Marketing Department at Middle Tennessee State
University received funding from an MTSU Technology Access Fee grant to create a
telephone survey research lab and the Office of Consumer Research to be housed in the
department. The Office of Consumer Research uses the telephone survey lab to conduct
surveys of consumer confidence in Middle Tennessee. The surveys measure consumers’
perceptions of economic conditions in the country as a whole as well as in Middle
Tennessee. Similar consumer confidence surveys conducted by the Conference Board
and the Survey Research Center at the University of Michigan have been shown to be
very predictive of key economic indicators such as inflation, interest rates and consumer
spending.
Students in Professor Timothy R. Graeff’s marketing research courses conduct the
telephone surveys. For further information contact Timothy R. Graeff, Professor of
Marketing and Director, Office of Consumer Research (898-5124; tgraeff@mtsu.edu).
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Middle Tennessee Consumer Confidence Index – December 2008
Consumer
Confidence
Recent Results:
Are business conditions
Good
in the U.S.
In Between
Bad
Six months from now,
Better
will business conditions
About same
in the U.S. be:
Worse
Are business conditions
Good
in Middle TN:
In Between
Bad
Six months from now,
Better
will business conditions
About same
in Middle TN be:
Worse
Are jobs in Middle TN:
Easy to find
Found
w/effort
Hard to find
Dec
'06
(%)
39
53
8
Feb
07
(%)
42
48
9
Apr
07
(%)
36
54
9
May
07
(%)
33
54
10
Sept
07
(%)
32
57
10
Nov
07
(%)
25
60
13
Feb
08
(%)
18
62
19
Apr
08
(%)
11
55
33
May
08
(%)
14
59
26
Oct
08
(%)
7
52
41
Dec
08
(%)
5
47
48
20
57
21
20
60
16
20
57
21
17
56
23
18
62
19
24
51
22
23
52
20
22
47
29
25
44
29
40
37
18
38
41
19
56
36
7
63
31
4
57
37
5
58
36
3
63
30
5
55
38
6
48
45
7
33
52
14
34
51
12
29
57
13
18
61
21
26
62
11
32
56
9
35
57
7
27
60
9
33
56
9
33
52
13
28
59
12
25
53
20
20
58
20
30
50
15
32
49
17
22
28
28
21
23
26
21
14
15
10
4
51
20
53
11
53
13
55
17
55
17
55
15
52
18
56
24
51
25
49
33
47
43
36
47
12
33
53
10
26
57
11
28
56
12
30
54
14
24
52
18
20
49
27
20
50
26
19
50
25
21
50
25
In Middle TN six months
More
from now there will be
About same
(# of job):
Fewer
25
53
19
Better
35
35
39
32
34
32
29
26
18
18
13
About same
49
15
52
12
48
13
47
20
50
15
51
16
47
23
45
28
44
37
47
34
48
37
44
47
6
46
45
8
41
49
8
39
46
11
46
47
6
45
44
8
39
47
11
43
44
10
33
50
12
39
44
11
37
51
11
38
42
15
41
44
9
39
45
10
28
49
16
28
49
15
37
40
20
28
44
23
24
38
35
25
35
36
17
33
45
34
30
34
48
29
19
52
25
18
52
25
18
50
29
18
50
18
30
53
16
29
64
11
22
60
16
22
65
9
21
57
12
28
63
15
21
46
33
16
46
35
14
34
40
22
34
40
21
40
41
15
40
37
19
34
37
25
36
34
28
38
25
33
34
27
36
44
26
29
Compared to a year
ago,
is your personal
financial
situation:
Worse
In 12 months will your
Better
personal financial
About same
situation be:
Worse
Is now a good time to
Good time
buy large items for
In between
the home?
Bad time
Is now a good time to
Good time
buy a house?
In between
Bad time
Is now a good time to
Good time
buy a car?
In between
Bad time
9
Middle Tennessee Consumer Confidence Index – December 2008
10
Middle Tennessee Consumer Confidence Index – December 2008
The Middle Tennessee Consumer Confidence Survey:
1. Turning first to business conditions in the country as a whole, would you say that
business conditions in the country as a whole are good, bad, or somewhere in
between?
2. And how about 6 months from now, do you expect that in the country as a whole
business conditions will be better than they are today, worse than they are today,
or just about the same?
3. Now turning to business conditions in Middle Tennessee, would you say that
business conditions in Middle Tennessee are good, bad, or somewhere in
between?
4. And how about 6 months from now, do you expect that in Middle Tennessee
business conditions will be better than they are today, worse than they are today,
or just about the same?
5. Now turning to the availability of jobs in Middle Tennessee, would you say that
jobs are easy to find, can be found with effort, or hard to find?
6. How about in the next 6 months, do you expect that in Middle Tennessee there
will be more job openings than there are now, fewer job openings than there are
now, or about the same number of job openings?
7. We are interested in how people are getting along financially these days. Would
you say that you, and any family members living with you, are better off
financially than you were a year ago, worse off financially than you were a year
ago, or about the same?
8. Now looking ahead, do you think that 12 months from now you, and any family
members living with you, will be better off financially, worse off financially, or
about the same?
9. About the big things people buy for their homes -- such as furniture, a
refrigerator, stove, television, and things like that, generally speaking, do you
think now is a good time for people to buy major household items, a bad time, or
somewhere in between?
10. How about buying a house? Is now a good time to buy a house, a bad time to buy
a house, or somewhere in between?
11. How about buying a car? Is now a good time to buy a car, a bad time to buy a
car, or somewhere in between?
11