Californians’ view of issues frequently diverges from those of the rest of the nation. It’s part of our DNA. Case in point. Last month, the University of Michigan’s national survey indicated that consumer confidence in the economy is at its highest point since 2000. Job growth, subdued inflation, a healthy stock market and record-setting expansion occupy the headlines and the market place. Yet, a recent survey of the attitudes of consumers in Los Angeles County reveals a counter trend which has troublesome implications for the local economy.
Fortunately, we now have meaningful data about our own back yard. According to the index released last week by the Lowe Institute of Political Economy at Claremont McKenna College, consumer sentiment in Los Angeles County declined 6% during the third quarter of 2018, in contrast to an uptick in the prior quarter – continuing the erosion of confidence in the economy measured since the 2016 election. However, there are a few bright spots. Attitudes about whether next year would be a good time to look for a job took less of hit – down by 3%. And, counter to the trend, the continued strength of the labor market is evident as 18-24 years olds, just entering the labor market, are increasingly optimistic – up 7%.
Why the disparity between Los Angeles consumers and others across the nation? Cameron Shelton, Director of the Lowe Institute, suggests that the rapid escalation in trade tensions with China and the resultant tariffs weigh heavily on the trade-dependent Los Angeles area. And, concern with rising interest rates is reflected in a substantial decline in consumer’s opinions as to whether it is a good time to purchase an automobile.
Importantly, in order to better understand the pessimism in the Los Angeles region, new questions surveying political attitudes were added to this most recent survey.
According to Shelton, political affiliation is strongly correlated with consumer sentiment in Los Angeles County, which skews heavily Democratic. Among those with no strong preference between the two parties, Los Angeles attitudes are similar to the nationwide average, hovering near the baseline index value of 100. However, the sentiment of Republicans is over the chart – with an index score of 132. Conversely, the sentiment of consumers who prefer the Democratic party has taken a deep dive, with the index revealing a pessimistic 84.
The importance of consumer confidence, which drives buying power, cannot be overstated since consumption accounts for, on the average, 70% of all U.S. economic activity. It has been demonstrated that consumer sentiment has statistical power in predicting spending even after controlling for other factors like changes in interest rates, stock market indices and household income, according to Shelton. So, despite the euphoria of the nation’s hot economy, Los Angeles consumers are taking pause.
So, it’s listen up time.
Will the mid-term election results impact consumer mood in Los Angeles County? Will the income divide deepen? Will trade wars wage on? The answers to these questions, along with others, will jolt consumers one way or the other to the benefit or detriment of the local economy.
Billie Greer, among other activities, is a Trustee of the Lowe Institute of Political Economy at Claremont McKenna College. She regularly reports on the Los Angeles Consumer Sentiment Index which is conducted quarterly.