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The contrast between the stock market volatility and the relatively low money anxiety among consumers shows that the stock market is not a predictor of financial confidence.

In early January, when the stock market exhibited its highest volatility, the Money Anxiety Index reported no signs of high financial anxiety among consumers.  In fact, the preliminary January Money Anxiety Index improved 1.3 points to 62.2 despite market volatility in the U.S. and abroad in the first week of the new year. 

The preliminary report by the Money Anxiety Index were confirmed yesterday when the Conference Board released its Consumer Confidence Index showing an increase of 1.8 points to 98.1 in January.  The reported increase in the level of consumer confidence during January support the early release of the Money Anxiety Index showing that the stock market volatility had no impact on the level of financial anxiety.

The improvement in the January Money Anxiety Index is in part due to a robust December jobs report that added 292,000 non-farm jobs.  Job gains are a major factor in the level of money anxiety among consumers because they reassure consumers that the economy is improving.  The contrast between the stock market volatility and the relatively low money anxiety among consumers shows that the stock market is not a predictor of financial confidence.

About The Money Anxiety Index

The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings pattern. Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.

The Money Anxiety Index functions as an early-warning system to shifts in the economy, allowing financial advisors to react in time to changes in the economic cycle. The Money Anxiety Index Is highly predictive. It predicted the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.


 
 
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The January preliminary Money Anxiety Index improved 1.3 points to 62.2 despite market volatility in the U.S. and abroad in the first week of the new year.  The decrease in the level of money anxiety is in part due to a robust December jobs report adding 292,000 non-farm jobs.  Job gains were strong in the service sectors such as professional & business, education & health and leisure & hospitality.

The improvement in the January Money Anxiety Index comes after 3 months of a flat index mostly due to fear and anxiety resulting from terror attacks in the U.S. and abroad in the last quarter of 2015.  Acts of terror promote economic uncertainty and financial anxiety in people, who instinctively react by reducing spending.  Early readings show that the 2015 holiday shopping season was up only about 1.5 percent over the previous year indicting consumers were holding back on spending.

The biggest threat to the U.S. economy is not market volatility, but rather fears of terrorism.  Terrorism impacts the economy in two distinct ways.  The first is the immediate impact on commerce right after a terror attack.  The November terror attack in Paris de facto paralyzed commerce in parts of Paris, and later on in the entire city of Brussels in Belgium, for a few days.  Repeated economic disruptions like these can have severe economic impact on local and national economies. 

The second economic implication of terror acts is in elevating financial anxiety in the aftermath of every terror attack.  The terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.