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The 1990 Montana consumer outlook.

The 1990 Montana Consumer Outlook

For eight years now, the Bureau of Business and Economic Research has been measuring Montanans' opinions about the consumer segment of the economy. We do this through a twice-yearly telephone survey of a representative cross-section of Montana adults. The survey asks a series of questions about Montanans' consumer attitudes. From their responses, we have developed a composite measure of how consumers are feeling. We call this measure the Montana Index of Consumer Sentiment. As an index measure, it tells us not only how Montana consumers are feeling at any given time, but also how their current feelings compare with earlier sentiments. In addition, we examine their attitudes by region, so we can also see how Montana consumer attitudes in one part of the state compare with attitudes in other regions.

Why study consumer attitudes? Economists closely monitor consumer attitudes because consumer spending accounts for two-thirds of the gross national product, the broadest measure we have of the nation's economic growth. A sharp drop in consumer spending could spell disaster for the economy. Since consumer attitudes indicate consumers' willingness to purchase consumer items, economists watch for changes in these attitudes. That's why, from time to time, you'll see the news media report a major spending drop, or announce an outstanding retailing period. Several groups look regularly at consumer attitudes nationwide. They include the WEFA Group, the national economic forecasting firm that is the source of our national projections; the Conference Board, an organization that supplies research and other services to U.S. businesses; and the University of Michigan, whose National Index of Consumer Sentiment has been tracking consumer attitudes since 1952.

The Montana Index. Our Montana Index is modeled on the one developed by the University of Michigan. Twice yearly, in June and December, we ask consumers a series of questions:

* 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 retail items such as furniture and appliances.

The Index Since 1982. Figure 1 shows the Index figures over the entire period we have conducted this project. The first year, 1982, is the base year, which we assigned an Index figure of 100. The other Index figures indicate consumer attitudes in relation to that first year.

In 1982, the Montana economy was at the end of the early 1980s recession period. Consumer attitudes grew steadily more optimistic in 1983, and stayed relatively high in 1984. As the recovery from the recession slowed, consumer sentiments dropped. Over the last two years, the sentiments have grown increasingly more positive and have approached the figures recorded in 1983 and 1984.

Why the changes? Economists know that consumers respond to various economic factors, some personal or local and others regional or national. Obviously, a loss of a job, or a raise, would change someone's outlook. The views of family and friends can also affect one's outlook. In addition, major local or regional economic news, such as a plant closure or a major business moving in, would also affect attitudes. In fact, we've found that Montanans' attitudes toward the state's one-year and five-year economic prospects are the most varied, and therefore have had the greatest impact on the Index figure.

For example, the latest Index figure for the state is about 108. This is just a little below the Index figure of a year ago, and, except for the December 1988 figure, the highest figure since the end of 1984. The level of those numbers, by comparison with the low point in 1986 and 1987, is due to Montanans' increased optimism about the state's one-year and five-year prospects.

We have watched over the years to see if changes in consumer attitudes corresponded to major national events. We have found no such correlation. Even the stock market crash of two years ago had no effect. So our conclusion is that in expressing their views, Montana consumers are responding to the statewide and regional economic situation. The current Index figure indicates to us that Montanans as a whole are remaining relatively confident about the economy.

Regional Differences. Even though the statewide consumer index is relatively stable, there are some regional differences. 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 and Bozeman are in the Southeast.

The Index figures, by region, have mostly showed the same overall trends. That is, a big change in the statewide figure was usually the result of an identical change in all three regions. Only once did a region's Index drop precipitously in consumer optimism, while the other regions experienced a notable gain. In 1985, the collapse of the oil exploration and production boom in the Southeast region caused a marked Index decline while the Western and Northeast regions increased.

The last eighteen months also offer an interesting case. In June 1988, the statewide Index increased, as did the regional figures. And the three regions had very similar Index figures. In December 1988, all regions showed healthy increases, but the West region rose dramatically. In June 1989, all the figures dropped but there was a very notable drop in the West. In December 1989, all three regions and the state figure rebounded.

As of December 1989, the latest survey, the three regions had almost identical Index figures (figure 2).

I looked at the figures by region and by county to see if I could pinpoint the cause of the West region's more pronounced change. What stood out were changes in Missoula County. In June 1989, Missoula County attitudes toward the state's short- and long-term economic prospects nosedived. They bounced back in December 1989. While the other counties and the other regions showed the same trend, the differences were much less pronounced.

We speculate that the last state legislative session was especially troubling for Missoula-area residents. Some of the proposed legislation--school equalization, for example--was strongly supported in Missoula, and the fact that many issues were unresolved was very disappointing. (The survey was held before the special session.) Also, the well-publicized cutbacks at the University of Montana no doubt had a negative impact. These setbacks, combined with uncertainty over other local issues, such as the Champion sawmill in Missoula, seemed to dramatically affect consumer attitudes.

I haven't said much about that mid-1989 dip in attitudes because the drop seemed to be so localized. We will be very curious to see what happens to our next survey in June. For the time being, our conclusion for the regions is similar to that for the state--consumers show relative optimism and relative stability.

Retail Items. In addition to the personal and statewide outlook questions, our consumer survey also asks Montanans about three specific consumer markets--major household items, homes, and automobiles. Responses to the question about major household items are used in the calculation of the Index. The others are not.

Our questions do not ask Montanans if they actually plan to make a major purchase during the coming year. Instead, we ask if the coming months would be a good time or a bad time for someone to buy these items.

Major Household Items. The first category is major household items, such as furniture and major appliances. Montana consumers were less likely to express optimism about this market--only 45 percent said the coming months would be a good time to purchase one of these items. One-fourth said it would be a bad time. There was not much variation by region.

Hone Buying. Sentiments on home buying have remained optimistic statewide for the past several years. In December, about 60 percent of those we talked to said the next twelve months would be a good time for someone to buy a home. Only one-fourth said this would be a bad time. The rest were unsure. Those in the Southeast region were especially optimistic, with two-thirds giving a positive response. Responses in the other two regions were closer to the statewide figure.

Car Buying. We've seen a real erosion in sentiment towards car purchases since 1986, when those very low-interest rate financing offers were first introduced. Then, over 60 percent of Montanans said it was a good time to buy a car. In December 1989, just over 40 percent gave that response, a proportion that has been relatively unchanged since 1987. Sentiments by regions were fairly similar, through again, Southeast area residents tended to be a bit more optimistic.

National Measures. How do our figures compare to national consumer sentiment measures? The latest overall trends seem to be very similar. Both the Conference Board and University of Michigan figures show stability and relatively strong optimism. Both measures show 1989 figures far above those of 1982, and both show far less variation than was true earlier in the decade. As the Conference Board newsletter of December 1989 summarized, the economic realities of the ordinary person continue to be favorable.

The WEFA Group's December newsletter had similar views. It reported that actual consumer spending has held up, with the exception of automobiles. "Overall consumer confidence remains high," it said, "which will help to sustain growth in the consumer sector." WEFA cautioned that a key uncertainty is the durability of consumer confidence. However, it does not forsee a collapse in either consumer confidence or consumer spending. Our Montana Index of Consumer Sentiment shows similar trends in Montana.

Mary L. Lenihan, Quarterly editor and BBER researcher, presented the Montana consumer outlook for 1990. Her presentation is based on telephone surveys of Montana consumers that are conducted with The Montana Poll, a project cosponsored by the Great Falls Tribune.
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Title Annotation:1990 Economic Outlook Seminar
Author:Lenihan, Mary L.
Publication:Montana Business Quarterly
Date:Mar 22, 1990
Previous Article:The state and local outlook: 1990.
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