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Dichotomy in economic data is causing confusion among consumers who see economic slowdown in the fourth quarter alongside a robust job market.

February preliminary Money Anxiety Index is down to 66.5 following a spike to 67.7 in January.  The January spike in consumers’ financial anxiety was caused by a disappointing fourth quarter GDP data showing 2.6 percent annualized growth rate; nearly half the growth pace in third quarter at 5 percent annualized rate.  Conversely, consumers are gaining financial confidence in February as a result of improvement in the January job report showing employers added 257,000 new jobs for the month.

The dichotomy in economic data is confusing to consumers, and is causing volatility in their level of financial anxiety.  The hardest part to understand is the healthy growth in the job market, which added an average of 336,000 jobs in the last three month, and at the same time, fourth quarter GDP growth rate slowed down to 2.6 percent and December consumer consumption was flat.  This confusion is reflected in the volatility of the Money Anxiety Index, which increased to 67.7 in January and back down to 66.5 preliminary for February. 

The Money Anxiety Index measures consumers’ level of financial worry and stress.  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 was developed by Dr. Dan Geller, who is an expert in behavioral finance, and the author of the book Money Anxiety.  The index is highly predictive.  It signaled 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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For the first time, the total amount of annual consumer spending equals the total amount consumers keep in their bank savings accounts.

At the end of 2014, the total amount of consumer spending was $11.9 trillion, which equals the total amount consumers keep in their bank accounts.  Historically, consumer spending, or personal consumption expenditures, was always greater than the total amount of savings consumers kept in bank deposits  Even during and in the aftermath of the Great Recession, when consumer spending slowed down and bank savings increased, the amount consumers spent exceeded the total amount they held in the bank.

Data from the U.S. Department of Commerce shows that in 2007 personal consumption expenditures was $9.8 trillion compared to $8.4 trillion in total bank deposits reported by the FDIC.  Consistently, since 2007, the amount of consumer spending exceeded the total amount of bank deposits until the end of 2014, when both, spending and savings, stood at $11.9 trillion each.  

This finding indicates a shift in consumers' financial behavior, who now keep 1 year worth of spending in their bank accounts as an “insurance policy” against future downturn in the economy.  The experience of the Great Recession had a deep and lasting impact on consumers, who are likely to maintain a balance between their spending and savings in the near future.

Dr. Dan Geller is a financial behavior scientist exploring the link between the level of financial fear and the savings and spending habits of consumers.  In his book, Money Anxiety, Dr. Geller uncovers the mystery of the financial mind, explaining why we hate to lose more than we love to win and why we spend when safe and save when scared.