The Timid Consumer

While the nation’s economy is slowly improving and regional wages continue to inch upward, a new consumer confidence study indicates attitudes about finances are not very optimistic in the region.

Bentonville, Ark.-based Arvest Bank embarked on a plan to twice a year publish a consumer confidence survey that covers Arkansas, Missouri and Oklahoma, and July 17 was the launch date.

David Mitchell, director of the Bureau of Economic Research at Missouri State University, has been retained by Arvest to analyze survey results in Missouri, which includes a few counties in Kansas that are in the Kansas City metropolitan statistical area.

“It is supposed to mirror the Michigan consumer confidence survey, which is nationwide. Interestingly though, the Michigan survey pulls from 500 people in the whole country, and this one is getting 400 people from each state,” Mitchell said. “But the methodology is similar, so you can compare these numbers.”

The comparison doesn’t bode well for the Show-Me State.

The inaugural Arvest Consumer Sentiment Survey set a consumer confidence index of 68.6 in Missouri, greater than Arkansas’ 67.4, but trailing Oklahoma’s 76.4. By comparison, the national index for June was 82.5, which is measured against the baseline index value of 100 from December 1964.

Index results
The survey was managed by the Center for Business and Economic Research in the Sam M. Walton College of Business at the University of Arkansas. The University of Oklahoma’s Public Opinion Learning Laboratory conducted its 1,200 phone surveys.

The index score is based on five questions designed to evaluate consumer perceptions about their current and future finances; current and future business conditions; plans to purchase major household items; existing debt; and existing and planned savings and demographic information.

Families in households earning under $75,000 in Missouri were less optimistic than the total regional average in the same wage category, according to the survey, scoring 59.2 compared to 65.8. Families bringing home more than $75,000 in the Show-Me State garnered an index score of 79.8, compared to 82.6.

Younger and less educated Missourians were the least confident, and secured index results most behind the regional averages.

For example, Missouri residents 18-24 years old scored 63.5 versus the regional average of 73.3 by their counterparts. Those 65 and older earned an index result of 60.3 in Missouri and 63.4 in the region. Participants who had attained a high school degree or less scored 58.2 in Missouri and 64 in the region. Those with a graduate degree living in the Show-Me State garnered a score of 84 compared to a regional index value of 85.3.

Mitchell said the lack of confidence likely stems from the low wage growth Missouri’s 3.2 million workers have realized since the recession.

“When you look at Missouri, we’ve got almost no growth in real wages,” Mitchell said.

Citing U.S. Bureau of Economic Analysis data, the report said Missouri personal income levels have increased by 2.6 percent during the past five years, or 0.52 percent per year.

“In the rest of the country, they may not be growing as fast as they have in other recoveries, but wages in Missouri are just not growing,” Mitchell said. “Consumers don’t feel any richer.

“And they shouldn’t. Normally, wages should be growing in the 1 to 2 percent range. Maybe even 3 percent [annually].”

Missouri has added around 120,000 net jobs since December 2009, according to the survey.  Mitchell said a lot of the employment growth has come from low-paying jobs. “To me, it just confirms what I’ve been saying for years about the Missouri economy: It underperforms the national economy,” he said.

Recession minded
The survey highlights attitudes that those most plugged into national financial trends have seen for years.

Jeff Layman, the chief investment officer at Springfield-based BKD Wealth Advisors LLC, said while last year’s stock market performance boosted the outlook, most investors he’s worked with lately have been largely recession-minded.

He said the 2008–09 recession was significant because gross domestic product fell by 4 percent during that time. The best comparison most investors have would be the 1981–82 recession, which brought down GDP nearly 3 percent.

“I think the downturn we went through five years ago felt worse to most people because during that 30-year period from the early ’80s event, there really wasn’t much of an economic downturn until ’08-’09,” Layman said.

“There’s no frame of reference because most people who were participating in the economy couldn’t remember what they were doing 30 years ago or they were so young it didn’t have much meaning to them.”

Now, he said people are more positive on the whole even though national GDP growth has hovered around 2 percent since the recession – below the 3 to 4 percent recovery norms of the past.

“Ironically, it wasn’t a tremendous growth year for the U.S. economy,” Layman said, referring to last year. “It is probably human nature as much as anything, but it seems to me investors have gotten more optimistic and somewhat less risk averse. Paradoxically, as the market goes higher and higher, you ought to consider risk more and more.”

Financial adviser Terry Conner said consumers still have a long way to go before moving into confident footing.

“I think 2013 helped the psychology of investors, but … I don’t believe anyone is overly enthusiastic,” said Conner, a managing partner and senior investment adviser with The Mutual Fund Store who manages company 401(k) plans, including Springfield Business Journal’s.

Conner said a lot of investors were hurt in the downturn, and they haven’t forgotten.

“People do often say that we haven’t recovered from the recession, but that is technically not true. We haven’t been in a recession since March 2009. That’s when the recession ended and this current bull-market cycle began,” he said. “What I think they’re saying is, ‘I don’t feel like I’ve personally recovered.’”

And that was reflected in the consumer survey results.

On the horizon, Conner and Layman agreed interest rates would likely increase some over the next two to three years, and geopolitical tensions, such as the fighting in Gaza, could cause short-term disruptions. But neither adviser predicts another recession around the corner.

More slow growth, coupled with temporary market corrections are likely, they said.

As for Missouri’s confidence, Mitchell doesn’t expect residents to become optimistic about earnings or spending any time soon.

“I think Missouri will be underperforming for a long time,” he said.[[In-content Ad]]