Arkansas consumers plan to spend some savings by mid 2016

Lower gasoline prices and a conservative disposition helped Arkansas consumers increase their savings rate from 11.6% to 13.9% through the first three quarters of 2015, according to the Arvest Consumer Sentiment Survey released Tuesday, (Dec. 15).

Households planning to save more declined, but 77% said they will continue saving money each month even though they are more confident about taking on more debt in the next year.

The September survey found that more Arkansans plan to spend down some of those savings on auto loans and credit card debt over the next six months. Specifically, 6% of respondents said they will take on more student loan debt in 2016, up from 5% in March. The number of households planning to buy a home doubled to 4% from just 2% in the March report. Consumers seeking new auto loans also ticked up to 3% from 2% earlier this year.

“Like their national counterparts, Arkansans reported being able to increase savings rates from March 2015 to September 2015,” said Kathy Deck, director of the Center for Business and Economic Research (CBER) at the University of Arkansas and lead economist for the survey. “It appears that low gasoline prices helped both higher- and lower-income families increase their savings rates.”

Arkansas households earning less than $75,000 annually boosted their savings rate to 11.3% in September compared to 6.1% in March, largely through lower gasoline costs. Those earning more than $75,000 saw their savings rate rise to 18.6% in September, up slightly from 18.1% in the March report. Economists have said lower gasoline prices tend to have a larger impact on lower income families because in many cases it is the first disposable income boost they have received in years.

“It may not have a huge effect on the top 10% of households, but if you’re earning $30,000 or $40,000 a year and drive to work, these gas savings are a big deal,” said Guy Berger, U.S. economist at RBS.

The federal government estimates the average U.S. household will save around $775 this year on gasoline expenditures. At a time of slow wage growth, this boost in discretionary income is significant, Berger said.
In Arkansas, Deck said a stronger overall job market in most areas of the state has helped fuel consumer optimism but that hasn’t deterred Arkansans from saving money and spending less than their neighbors in Oklahoma and Missouri.

Arkansas nonfarm payroll employment rose by 12,300 to 1,219,400, up from 1,201,100 in September. October marked the fifth consecutive month the nonfarm level set a new record. Prior to June, the record was 1,209,800 in July 2008. The nonfarm number topped the 1.2 million mark in December, the first time since September 2008.

Arkansans’ consumer debt overall was lower than the two neighboring states. Missouri respondents were more apt to have a mortgage (45%) or a home equity line of credit (11%) than households in the other two states. In Arkansas roughly one in three respondents said they have a mortgage (32%) while 7% have a home equity line of credit. This compared to 34% of Oklahoma households with mortgages and 7% with home equity loans.

More Arkansans have taken on credit card debt (40%) over the past nine months, up compared to 37% of households with credit card debt in the March survey. Consumers in Arkansas are also spending more on auto loans as 35% of the respondents reporting taking on this kind of debt, compared to 30% in the March survey.

“As consumer confidence remains high, we have seen increases in inquiries for auto loans and credit cards in the last half of the year,” said Rodney Shepard, president at Arvest Bank in Fort Smith. “It’s an indication that customers are feeling positive about their personal financial situation.”

Looking ahead to 2016, one in four Arkansas respondents said they plan to make a major household purchased in the next six months. Major household purchases include items such as furniture, televisions and kitchen appliances. In September 37% said they already made a large purchase since the March survey.