Economic confidence among affluent Americans regarding the overall state of the economy rose seven points this quarter, following a significant, 13-point decline last quarter during the 2004 election season, according to the latest quarterly McDonald Financial Group Affluent Consumer Confidence Index results, released today. This represents one of the largest quarter-to-quarter increases in two years.
The overall score for the January McDonald Financial Group Affluent Consumer Confidence Index was 55 out of 100 – a seven-point (or 15 percent) increase since the last survey in October (48). The increase in affluent consumer confidence this quarter returns the Index to a similar level as one year ago (56 in January 2004).
As a result of their positive feelings about today’s economy, affluent respondents say they plan to increase their spending and investing levels over the next quarter, with 30 percent of affluent Americans saying they would put more money in the stock market over the next three months. Thirty-two percent of business leaders polled say they plan to increase hiring levels over the next three months, a 15-point increase from last quarter. However, while the current picture appears quite positive, affluent consumers still have concerns about the future of the economy due to a number of issues facing the country such as Iraq, a perceived real estate bubble and the national deficit.
David Legeay, senior vice president, McDonald Financial Group, said, “We found that confidence among the affluent severely declined during the presidential election period as debates among the candidates brought issues like jobs and the economy to the forefront. Now, with the election decided, solid GDP growth and stock market gains in the last quarter of 2004, affluent Americans again appear to be very confident about the current state of the economy. Unlike previous quarters, when confidence has not necessarily translated into higher spending and investing intentions, in this quarter larger numbers of affluent Americans say they both feel more confident and plan to take action.”
The percentage of those who say they would invest more of their assets in the stock market this year than last year jumped six points to 23 percent, up from 17 percent last quarter.
Intentions to make home improvements increased by seven points to 21 percent since last quarter. Plans to purchase a second home in the next three months are up five points since last quarter to 10 percent, the survey found.
Thirty-two percent of business leaders – who represent 43 percent of those polled in the survey – say they plan to increase hiring in the next three months. This represents a 15-point increase from last quarter, when 17 percent said they would increase hiring. Business leaders are defined in the survey as those who own their own businesses or are senior-level executives.
Although overall economic optimism has significantly improved since October and has returned to near all-time high levels, some doubts remain among affluent Americans about the future of the economy due to several issues facing the country.
For the third quarter in a row, the survey saw increased concerns over Iraq, with more respondents than ever before, 36 percent, saying Iraq was the most important issue facing the country today (up from 27 percent in October). The current level of concern stands well above levels in April 2004 (eight percent) and January 2004 (11 percent) during the Iraq war.
Nearly half, 46 percent, of affluent Americans believe the situation in Iraq will contribute to a sluggish economy during the next four years, up from 36 percent last quarter. A full 58 percent say they are concerned that a damaged American image due to the situation in Iraq will hurt U.S. international business, up from 55 percent last quarter.
There is a high level of concern about the national deficit, with 70 percent of affluent Americans saying they are “very” or “somewhat concerned.” Fifty-seven percent think that the national deficit will have a negative impact on the economy over the next year. Most affluent Americans, 62 percent, are highly doubtful that the national deficit will be cut in half over the next five years.
Real estate bubble fears are now on par with their highest point in the survey, with 56 percent of affluent Americans now saying there is a real estate bubble (up from 54 percent in October and tied with the survey’s high point in July of 2004).
As a result, intentions to move assets into real estate remain low at 24 percent, slightly up from 20 percent in October. Thirty-four percent are concerned that rising interest rates will cause a significant drop in housing prices. The percentage of those who are “very concerned” jumped five points this quarter to 12 percent.
The McDonald Financial Group Affluent Consumer Confidence Index – a quarterly measure of market sentiment – is based on a national survey of randomly selected individuals with investable assets of $500,000 or more, and/or personal annual income of $150,000 or more. The poll was conducted by independent research firm Penn, Schoen & Berland between Dec. 18, 2004 and Jan. 7, 2005, representing the ninth wave of testing for the survey, which debuted in January 2003.
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