By Suzanne Woolley
The Presidential candidates may be optimists -- at least until Nov. 3 -- but a recent survey shows affluent Americans in a far more pessimistic mood. McDonald Financial Group's latest quarterly survey of affluent Americans shows a dramatic 21% decrease in economic confidence since the poll was last done in July. The slump is the survey's first decline in economic confidence since April, 2003, and a sign that uncertainty about the outcome of the Presidential election is taking its toll on consumer psyches.
From Sept. 27 to Oct. 8, the survey canvassed some 400 randomly selected individuals with investable assets of $500,000 or more and/or personal income of $150,000 or more. (The margin of error is plus or minus 4.9%.)
DESCENDING FROM A HIGH.
One quick conclusion: The worries of the well-heeled aren't all that different from those of middle America. The list is topped by Iraq, terrorism, energy prices, unemployment, interest rates, and a possible real estate bubble. Concerns about Iraq loom largest, with 27% of those surveyed citing the conflict as the top issue facing the U.S. today, and 55% concerned that a damaged American image abroad could hurt U.S. business overseas. More than a third expect the Iraq conflict to slow down the economy over the next President's term.
When rich Americans focus squarely on the domestic front, their outlook is no cheerier. Back in July, just under a quarter of those surveyed thought the economy was headed in the wrong direction. Now, 42% think the economy is going down the wrong path. Nevertheless, when asked who they would rather have as their captain if they were on a boat in foul weather, 48% chose George W. Bush, 33% answered John Kerry, and 19% were undecided (and, presumably, destined for a watery end). A worsening economic picture in the next quarter is what 13% of the respondents expect, up from 6% last quarter.
It may be more that those polled are coming down from a confidence high, however, than sinking into a slough of despond. "Confidence levels are about the same as they were in our October 2003 survey, when the affluent had become increasingly optimistic after gains in the stock market, tax cuts, and job increases," says David Legeay, senior vice-president, McDonald Financial Group.
In July, optimism among the wealthy Americans surveyed had reached its highest level in seven quarters. Even with their more chastened outlook, 43% of those surveyed believe the S&P 500 will go up over the next three months (that's down from 60% in the last survey).
Uncertainty about whether housing values will hold their own is also adding to stress levels. More than half of those polled say we're in a real estate bubble -- about the same percentage as said so back in July. Just some 20% are moving assets into real estate, and the effect of rising interest rates on property prices is a concern for 38% of respondents, up from 33% in July.
If that trend continues, it could be an ominous sign: Federal Reserve Bank of St. Louis President William Poole recently said while he's not a fan of the various consumer-confidence surveys, he does think that housing data is the "best measure" of the public's mood. And sagging confidence leads to declines in consumer spending, which has long been the engine of U.S. economic growth.
Indeed, all this worry is causing people to rein in buying. The luxury-goods market is often thought to be fairly immune to slowdowns, but it seems those Prada bags and Rolex watches may be sitting on the shelves a bit longer, with 10% of the wealthy saying they'll decrease their high-end spending. The percentage of folks planning to hop on a plane for vacation over the next three months is at 46%, its lowest level since the survey began in 2003.
WEALTH PRESERVATION RULES.
Big-ticket items like cars are seeing a significant drop in interest, with 9% planning to enjoy that new car smell in the next quarter -- a big decrease from the 20% level that has prevailed for the last five quarters. Home-improvement plans are being cut back as well: 14% say they'll spruce up their residences over the next quarter, down from 24% in July.
How does the market sentiment of the affluent compare with that of people surveyed by more established outfits, such as the Conference Board and the University of Michigan? The Consumer Confidence index, which is put out by the Conference Board and samples 5,000 U.S. households, had its second consecutive monthly dip in September. The percentage of folks saying business conditions are "good" inched up, though they may not feel that on a personal basis -- the proportion of consumers saying "jobs are plentiful" fell. Michigan's September sentiment index also fell, albeit not by much -- to 94.2, from August's 94.9 -- as concerns over rising oil prices mounted, and job growth remained sluggish.
What the McDonald survey boils down to: The rich are a lot more risk-averse and are hunkering down. "People are more interested in preserving wealth now than accumulating wealth," says Legeay. In uncertain times like these, when we're hearing a fairly steady drumbeat of negative or mixed economic news, the appeal of simply not losing money, as opposed to making gobs of it, starts looking awfully sexy.
Woolley is an editor for BusinessWeek in New York