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The 1989 Montana consumer outlook: increased optimism.

The 1989 Montana Consumer Outlook: Increased Optimism

Consumers nationally have been feeling upbeat recently, and Montana consumers are no different. The Bureau's Montana Index of Consumer Sentiment rose in December to its highest level in four years.

Economists closely monitor consumer attitudes because consumer spending accounts for two-thirds of the gross national product, the broadest measure of the economy's growth. A sharp drop in consumer spending could send the economy into a tailspin. Since consumer attitudes indicate consumers' willingness to buy, economists watch for changes in those attitudes.

Since no one was monitoring consumer attitudes at the state level, the Bureau began to do so in 1982. We conduct twice-yearly telephone surveys of Montana consumers, in conjunction with the Montana Poll. The Poll is a public opinion poll we conduct regularly in conjunction with the Great Falls Tribune.

The Index

To measure Montanans' consumer attitudes, we created the Montana Index of Consumer Sentiment. It is a composite measure of how consumers are feeling. It consists of the answers to five questions asked of a representative sample of Montana adults. The questions ask Montanans how their own household fared financially in the past year; if they expect their household economic situation to improve in the next twelve months; how they expect the state's economy to do in the next twelve months and the next five years; and if they think the next six months would be a good time to buy major household items such as furniture and appliances.

Figure 1 shows how the Index has changed. Consumer attitudes rose in 1983 and 1984 as the state began to recover from the recessions of the early 1980s. As that recovery slowed, consumer sentiments dropped. It's only been in the last twelve months that consumer sentiments again reached the levels of the mid-1980s.

The statewide figures mask some regional differences. While the overall trend in the Index Figures--up or down--usually have been the same across the state, the sentiments in the three regions we use for analysis have varied in the degree of change. Recently, for example, it was western Montanans who were feeling better about the economy. More about these regional differences shortly.

Changes

In studying the Index figures over the last six years, we've identified the key factor for changes, up or down, in Montanans' consumer attitudes. THat factor is Montanans' attitudes concerning the state's long-term and short-term economic prospects.

Montanans' own personal financial situations, and their expectations for improvement, haven't changed much over the years. Another question included in the Index--whether it's a good time or a bad time to buy major household items--has shown some variation, but not much. The biggest changes have occurred in the attitudes toward the state's one-year and five-year economic outlook, especially the one-year outlook.

For example, in December 1987, only one-fourth of Montanans said they thought the state's economy would do well in the coming months. Half expressed a pessimistic view. In December 1988, however, 39 percent said they thought the state's economy would do well in 1989. Forty-two percent had a negative view.

There were similar proportions on the five-year outlook, though the base figures for comparison, from December 1987, were a little higher, so the change was not as great.

The high water mark for the Index, December 1983, had identical figures for the five-year outlook, and even higher proportions for the positive one-year outlook. So, at least for the 1980s, it was Montanans' expectations about the state's economy that have determined their overall consumer outlook.

We watched over the years to see if the timing of the changes in consumer attitudes corresponded to important national events, and we found no correlation. Even the stock market crash last year had no effect.

So we think that in expressing their views, Montana consumers are responding to the statewide and regional economic situation.

Regional Differences

Moving on to regional differences, we've definitely seen some over the years, and our latest survey is no exception. The regions we use to study consumer attitudes are identical to the multicounty regions used in our forecasts. Missoula, Kalispell, and Butte are all in the west region; Helena and Great Falls are in the northeast region; and Billings is in the southeast region.

For the most part we've seen the same general trend among the regions. Usually consumer attitudes in all three change, up or down, concurrently.

But the degree of change varies. For example, in 1985 and 1986, when the declines in the oil and gas industry were becoming entrenched, we saw a drop in the statewide Index, and declines in all three regions. The biggest change came where you might expect, the Southeast, where oil and gas are more important.

Similarly, over the pat year, as the Index figure has climbed, we've seen a climb in all regions. But the biggest increase has been in the West, which has had the best economic news lately.

Figure 2 shows the individual trade area Index figures for 1987-88. In December 1988, while the statewide figure was 110, it was 108 in the Southeast, 106 in the Northeast, and 119 in the West.

When we think back to the statewide economic news in the last twelve months, we see that much of it concerned the West. This included events such as the settlement of the millworkers' strike at several plants in western Montana, bonus checks to Montana Resources personnel in Butte and aluminum workers in Columbia Falls, new mining activity in the Libby-Troy area, and so on. That, coupled with the current healthy state of the wood products industry and increases in travel and tourism, add up to greater optimism.

Retail Sales

In addition to the personal and statewide outlook questions, our consumer surveys also ask Montanans about three specific consumer markets--automobiles, homes, and major household items.

Responses to the question about major household items are used in the calculation of the Index.

We don't ask if Montanans are planning to make a purchase. We ask if the coming months would be a good time or a bad time for someone to buy these items.

Despite the climb in optimism toward the state's economic prospects, Montanans could best be described as moderat in their outlook for the major household items market. In December, 50 percent said the next six months would be a good time to buy. Just over one-fourth said it is a bad time to buy. These proportions have changed very little in the last few years.

In looking for demographic differences, we found the same regional differences we found on the state outlook questions. Residents of the west trade area showed the most enthusiasm, with 56 percent saying it is a good time to buy and only 21 percent saying it is a bad time. Southeast area residents were a bit less enthusiastic, with 50 percent positive and 28 percent negative. Northeast area residents were less positive, with 48 percent saying it is a good time to buy and 34 percent saying it is a bad time.

Attitudes toward homebuying are more rosy. Overall, in December 57 percent said 1989 would be a good time for someone to buy a home. Twenty-nine percent gave a negative response.

Even so, these proportions are down just a bit brom the figures recorded earlier in 1988.

On homebuying, the regions showed a somewhat different trend. More southeast region residents expressed enthusiasm for the housing market than did those from other areas, with 61 percent giving a favorable response. The northeast region was next, with 57 percent, while the west region had 52 percent saying it is a good time to buy a home. All three had similar proportion saying it is a bad time to buy--around 28 percent.

On car buying, we saw no change in attitudes since mid-1988. Statewide, 44 percent said it is a good time to buy a new or used car. One-third said it is not. Enthusiasm for car buying has definitely cooled since the peak in attitudes that we say in mid-1986, when very low interest rate financing and other incentives flooded the market, with great results.

Differences among the regions were less pronounced. West trade area consumers were more enthusiastic, with 49 percent giving a positive response, but the other trade areas were close behind, at 43 percent. The west and northeast trade areas had similar proportions, 29 percent, expressing a negative view. The southeast region had a larger negative group, 38 percent.

Political Differences

Since we have demographic information about the Montanas we interview, we always check to see if there are demographic patterns for each survey, or for the answers given to a particular question or set of questions over a period of time. Regional differences crop up frequently, due to the differences in the economic health of our large state's rather diverse regions. But aside from the regional differences, we check to see if there are consistent differences of opinion among other groups. Among the other factors we examine are the respondents' age, sex, education level, income level, and political prefrence.

Over the six years we've conducted these surveys, we've seen few consistent patterns. In December 1988, there was one. Since 1988 was an election year, and since, for the firt time in a long time, Montana has a Republican governor at the same time we have a Republican president, it is perhaps not surprising that Montana Republicans are feeling quite a bit more optimistic about the economy than te Democrats are. Those who said they are Republicans, or lean in that direction, were more likely to express optimism on all seven consumer questions.

For example, in assessing the state's economic prospects for the coming year, half the self-described Republicans expressed optimism. Only one-third of the Democrats did.

I doubt this pattern will last. Probably it's just a reflection of post-election euphoria and disappointment. We'll see if this pattern persists through mid-1989, when the new administration's "honeymoon" period will either have ended or be nearing its end.

Summary

What can we concluce about Montana consumers' current attitudes? Our Index shows that Montanas across the state are definitely more optimistic about the economy than they were a year ago. This optimism probably translates into some reasonably high expectations for 1989. One could also probably say that this optimism is a reflection of the good economic news we've had in the last six months. The fact that consumer feelings are considerably more optimistic in the western part of the state--where much of that good news originated -- indicates that. Whether the increased optimism translates into increased consumer expenditures, or whether a good economic year materializes, remains to be seen.

Quarterly editor and Bureau research administrator Mary L. Lenihan summarized the 1989 consumer outlook.
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Author:Lenihan, Mary L.
Publication:Montana Business Quarterly
Date:Mar 22, 1989
Words:1790
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