Despite the weak jobs report and an unemployment rate of just over 8 percent, Americans report feeling increasingly optimistic about the economy, according to a new Citi Economic Pulse survey. When asked about their own finances as well as their local economics, most Americans report a greater sense of confidence about the future compared to last year.
"A year ago, people were really unnerved by what was going on in the economy: Fear of financial contagion in Europe, concern because S&P had downgraded U.S. Treasuries, and concern over whether Congress was going to raise the debt ceiling. All of those things contributed to a massive amount of financial insecurity," says Jonathan Clements, director of financial education at Citi Personal Wealth Management.
Now, Americans still face uncertainty in some areas, with the presidential elections coming up and so-called "taxmageddon" lurking, but the 12 consecutive quarters of economic growth has eased much of their worry, explains Clements. Even the unemployment rate is an improvement over the 10 percent of October 2009.
"We haven't seen the level of massive job layoffs that we were seeing back in 2008 and 2009, so even if people are still finding it difficult to change jobs, they don't feel as worried they'll lose their current position. That gives people more confidence, and a confident consumer is really important to the economy. They buy homes, new cars, and launch small businesses," Clements says.
Here are three more signs Americans are getting more optimistic about where the economy is headed:
1. They aren't sacrificing as much as they were last year. While Americans are still cutting back, the Citi Economic Pulse found that fewer report reducing their credit spending (60 percent this year compared to 68 percent last year), fewer are working a job they "wouldn't take in a better economy" (24 versus 29 percent), and fewer are reducing their restaurant trips (58 versus 67 percent).
Clements adds that much of the cutting back that remains could be more about habit and status than real financial need. "Just as having a big house in the mid-2000s was considered an important status symbol, frugality is now a status symbol," he says. And while people self-report a tendency toward frugality, the average savings rate is still relatively low, around 4 percent.
He says, "I think people are willing to open up their wallets and spend, but I don't think people are willing to spend as freely as they were seven or eight years ago, and it's not clear how quickly we'll get back to that."
2. The majority of Americans report feeling more in control of their finances. Citi found that 76 percent of respondents feel a greater sense of control. In fact, Americans tend to be more optimistic about their own finances that those of the general economy, which Clements notes is a common phenomenon found in other types of surveys, too. (Most Americans, for example, report that they are better than the average driver.)
"People tend to assume that good things will happen to them. They might be delusional, but it's also a very useful trait," says Clements. "People who are optimistic and self-confident tend to be happier."
3. Americans describe themselves as more optimistic. When the Citi Economic Pulse Survey asked respondents how they felt about the economy, they reported far less pessimism than three years ago. In fact, the majority of respondents said they believe their local economy will improve over the next year, an increase over just 41 percent who said the same last year.
Do you share these respondents' optimism?
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- Jonathan Clements