The Money Anxiety Index (moneyanxietyindex.com) declined to a recorded low in the past four years reflecting a more favorable financial mood among consumers. The December Money Anxiety Index, which currently stands at 81.9, was 10.5 points higher at 92.4 in the beginning of 2013. The 10.5 point decline in the level of consumer financial anxiety in 2013 was the greatest single-year improvement in the past four years. Cumulatively over the past four years, the Money Anxiety Index declined 12.5 points, from 94.4 in October of 2010 to its current level of 81.9.
The improvement in the level of consumers’ financial anxiety is reflected in some major economic indicators such as personal consumption and retail sales. Personal consumption has gradually increased throughout 2013 indicating more financially confident consumers. In the first quarter of 2013, personal consumption increased by 1.1 percent over the fourth quarter of 2012. In the second quarter of 2013, the increase in personal consumption jumped to 2.5 percent over the previous quarter, and in the third quarter of this year, the increase reached 4.1 percent according to data from the US Department of Commerce.
Another indication of improved level of consumer financial anxiety is the report released last week by The Commerce Department showing that durable goods orders jumped 3.5 percent in November as demand increased for a range of goods from aircraft to machinery and computers and electronic products. Non-defense orders, excluding aircraft, surged 4.5 percent making November’s figure the largest increase since January. The report suggested strength in manufacturing, which supports the observation made by the Money Anxiety Index that consumers are exhibiting less financial anxiety, thus creating greater demand for durable goods.
The link between consumers’ financial anxiety and their spending habits has been documented and demonstrated in the newly published book Money Anxiety (moneyanxiety.com), which shows empirically the link between consumers’ level of financial anxiety and personal expenditure. The Money anxiety book also explains why the level of consumer financial anxiety impacts retail sales and bank savings by introducing a newly-developed segmentation method called Behavioralogy, which defines the financial behavior of consumers during various levels of financial anxiety. Behavioralogy identified six types of financial orientations: Mattress Money, Durable Diet, Power Play, Tiny Treats, Rate Race and Castle Craze.
Overall, 2013 was a good year for the economy. Whenever the level of financial anxiety decreases we can expect an improvement in the economy because less anxious consumers spend more, and personal consumption makes up about 70 percent of the economy.