2009 Report on New Jersey Consumer Intentions

Consumers retreated in 2008 but won’t surrender in 2009

 

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Despite gloomy reports on the economy, New Jerseyans’ confidence in their future prospects is at a three-year high. According to the annual consumer survey of New Jerseyans by Fairleigh Dickinson University’s Silberman College of Business, 46% of Garden Staters say their personal financial well-being will improve in the next 12 months, compared to 25% who think they will be worse off by year’s end.  In the survey a year ago, New Jersey consumers split, with 37% saying they’d be better off by 2009 and 33% saying they thought they’d be worse off.

The improvement in Jerseyans’ confidence since a year ago contrasts sharply with the fact that a majority (58%) say that they are now worse off than a year ago; only 13% say they are better off now than a year ago.   Gloom over present circumstances is also reflected by an unprecedented 88% who say business conditions in New Jersey are worse now than a year ago.

“This comes as no surprise,” said Sorin Tuluca, professor of finance at the Silberman College of Business and an expert on financial crises, a topic on which he has published extensively. “After years of speculation in the housing market, the bubble has burst. The effects were felt first in the financial markets. Once credit froze, production was reduced, which led to worse business conditions and to problems in the job market. This further diminished consumer participation in the economy. The downward spiral stops when confidence is restored.”

New Jersey residents are not downbeat about future prospects for business in the state: 42% say that business conditions will improve in the next months, a sharp upswing from the 28% who predicted last year that things would improve. In fact, a year ago, 42% said business conditions would get worse in New Jersey, and they were right.

“It is all about confidence,” said Tuluca. “The exact event that triggers a financial crisis is often unknown, but evidence has accumulated since the Tulip-mania of the 17th century. Crises spread through markets like a contagious disease.  The contagion grows proportionally with the lack of confidence in the future.  In short, people overreact on the upside, fueling speculation. They overreact again on the downside. The overreaction ensures the success of both the bubble and the crisis,” said Tuluca.

An unprecedented 50% of New Jerseyans predict housing prices will stay the same this year; 14% say they’ll decline further, and 28% say they’ll rise. This is in sharp contrast to a year ago when 47% expected that housing prices would decline.

“A stabilization of housing prices would be a major step in reviving the economy,” said Tuluca. “Certainty in housing values will allow investors to make sense of asset values and balance sheets. Confidence in valuation will stop the flood of write-offs. Stopping write-offs will allow lenders and borrowers to engage in normal financial activity, producers to engage in normal production activity, and consumers to return to normal activity and confidence levels,” explained Tuluca.

There is also an uptick this year of five points, compared with the previous three years, in the percentage of people who say they will refinance their house in the coming year.

Despite signs of a restoration of confidence, there are a number of problems evidenced in the survey:

“The economy might not clear the dark part of the tunnel in 2009,” said Tuluca.  That conclusion is supported by two composite indicators of economic activity. The Index of Consumer Intentions — what consumers think they will do — is 39, up from 37 a year ago but less than 40 two years ago, and significantly less than 45 just before the last presidential inauguration of 2005.

The Index of Past Performance — what consumers actually did — is 24, a sharp deterioration from 34 a year ago, 38 from two years ago, and 43 before the last presidential inauguration.

“The upward trend in consumer intentions is timid,” says Tuluca. “Consumers are going to be cautious in the context of the difficult and confusing year behind them.” 

The retrospective index of 24 for this survey marks the lowest point in its seven years. In addition, the difference between consumer intentions for the coming year and consumer performance over the previous year is the highest on record. “Hopefully, for 2009, consumers have adjusted their expectations and learned from their previous over-optimism,” said Tuluca.  “The Fed and the Treasury are important players, but in the end, it’s all in the consumers’ hands,” concluded Tuluca.

The telephone survey of 841 randomly selected adults throughout New Jersey who participate in their household’s financial decisions was sponsored by Fairleigh Dickinson University’s Silberman College of Business and conducted by Fairleigh Dickinson’s PublicMind from January 5 through January 11 and has a margin of error of +/- 3.5% percentage points.

Contact:

Sorin A. Tuluca 973.443.8810                        Peter Woolley 973.670.3239

For more information, please call (973) 443-8661.



Copyright © 2009, Fairleigh Dickinson University. All rights reserved. FDU PublicMind Poll [Latest update 090116]