An index assessing consumer sentiment in Los Angeles County, recently released by the Lowe Institute of Political Economy at Claremont McKenna College, sounds a warning signal that could impact the prospects of the local economy.  The index reveals a marked downturn in consumer attitudes in the County which is problematic, given that consumer spending accounts for about 70% of economic activity in the United States.

Believed to be the first of its kind conducted in a major U.S. city, the index shows a 12% decline of consumer optimism in Los Angeles County in the fourth quarter of 2016 versus third quarter 2016 results when there was a sharp rise. The decline was across all ethnic groups and consistent across most age groups, with the exception of senior citizens where there was a significant uptick and in the 45-54 age category. Survey questions focused on the respondent’s current situation, perceived future prospects and spending plans.

“This notable drop in consumer sentiment reflects just one quarter.  If the first quarter 2017 results also drop, then we can view this as a downward cycle,” noted Marc Weidenmier, Director of the Lowe Institute of Political Economy. “Right now, businesses should be cautious and take a ‘wait and see’ approach before making major inventory commitments. For governments relying on sales tax revenue, it’s not time to redraw budgets but time to pause and consider the potential ramifications if we head into a period of decreased consumption.”

The Los Angeles survey results are in stark contrast with national surveys that indicate an uptick in consumer confidence. Weidenmier points out that the differences between the two surveys are likely due to LA’s multicultural and diverse economy that is not reliant on one industry, its position as a gateway to the Pacific Rim, and other variables distinct to the region.  He also said that, “Another factor in LA may be the ‘Trump effect’ as the majority of the County is deeply Democratic with policy views that are opposite those of the new administration. The fourth quarter 2016 survey was taken in December when LA residents were absorbing the news of the election outcome.”

Stay tuned for the first quarter 2017 results to see if the downturn in consumer confidence in LA County is a trend.  And, get ready for an Orange County index which is next.

Billie Greer, among other activities, is a Trustee of the Lowe Institute of Political Economy at Claremont McKenna College.