Improving economies lift consumer confidence through most of 2016

Lower employment, job gains and positive growth among most of Arkansas’ metro areas this year has pushed consumer confidence to its highest level in two years, according to the recent Arvest Consumer Sentiment Survey.

With an index reading of 86.7, Arkansas consumers surveyed in August were also more confident than their Oklahoma neighbors (82.1), noted the survey released Tuesday (Oct. 11). Missouri, the other state in the regional survey had the most optimistic consumers with a reading of 88.3 in August. The national confidence reading was 89.8, better than the three-state-regional reading of 85.6.

Natural State consumers have been more cautious than their national cohort since the Arvest survey began in the spring of 2014. Over the past two years the gap in confidence has narrowed against the national reading with each report. In the most recent reading the gap narrowed to 3.1 points. When the survey began in the spring of 2014 the point gap was 15.1. Over the past year the gap between Arkansas and national consumer confidence narrowed 9.4 points.

“Unsurprisingly, consumer sentiment in Arkansas was at its highest measured level since the inception of the Arvest Consumer Sentiment Index. Moreover, the increase in sentiment was widespread in families with both higher and lower incomes,” said Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas, and lead researcher for the Arvest survey.

Deck recently said Arkansas consumers have many reasons to be more confident, including robust growth in Northwest Arkansas and the Jonesboro metro. She said central Arkansas is growing at a slightly slower pace relative to the two northern corners of the state and the Fort Smith metro is slower still, but there are positive signs there.

She told Talk Business & Politics there has been a lull in consumer income growth in recent months nationally which paused consumer spending in September, despite a high confidence reading on the national scale. Deck said consumers have seen the savings from lower gasoline prices and some food deflation being eaten up from higher health care costs as well as increasing utility and education expenditures.

“Consumers have also paid down some of their debt and they have saved a little more. I can tell you consumers in Arkansas are feeling better about the economy than they have in the past two years,” Deck said.

The Arvest survey looked at two distinct income demographics: households more than $75,000 in income and those below. It’s no surprise the higher income households had 95.6 index compared to the 84.3 in the lower income cohort. Deck said lower income families in Arkansas were more optimistic than their neighbors in Oklahoma (79.9)  and Missouri (81.5).

Arkansas Banker’s Chair Dr. Tim Yeager, a former economist with the St..Louis Federal Reserve, recently told Talk Business & Politics the recovery now in its eighth year has been uneven in part because of the interest rate manipulation by the Federal Reserve. He said near-zero interest rates for a prolonged period have helped to fuel mini bubbles in the stock and real estate markets. He said wealth in the nation created post recession belongs largely to the already rich.

“With real estate prices rising in many parts of the country, low income people and middle class populations who might buy real estate are being priced out the market and forced to continue renting,” Yeager said. “The Fed may be pulling forward some growth with these low, low rates and creating some instability in the meantime.”

Deck said as long as the national economy can grow annually at 2% to 2.5%, Arkansas consumers are likely to be optimistic.

“Arkansans are reacting to seeing signs of a growing economy around them, such as new construction in some areas and an increase in ‘Help Wanted’ signs in their cities,” said Donny Story, president and CEO for Arvest Bank in Fayetteville. “They interpret those as indications that they can feel confident about their personal financial prospects.

The Arvest survey also assessed sentiment by education levels and found Arkansans with bachelor degrees are among the most optimistic in the state with a confidence reading of 96.9 compared to 79.7 for those with high school diplomas. Other Arkansas cohorts with the most optimistic expectations for the economy include respondents under the age of 45. Consumers between the ages of 18-24 had a reading of 95.5 in Arkansas, well below the 103.2 reading from the same cohort in Missouri. Oklahoma’s younger respondents had a confidence reading of 93.4.

Arkansas respondents between the ages of 25 and 44 had a confidence reading of 94.4, which fell between the 97.5 reading in Missouri and 88.5 index reading in Oklahoma. Confidence readings fell dramatically for Arkansas respondents between the ages of 45 and 64. This cohort had a confidence reading of 79.1, 10 points below the older group above age 65.

Respondents between ages of 45 and 64 are approaching retirement, less likely to be hired if a job is lost and in many cases financially unprepared for retirement – just a few reasons behind this group’s less optimistic outlook. This group also drew the lowest readings in Oklahoma (73.2) and Missouri (77.1).