The study measured the lag time between two types of financial confidence indices, one based on action and the other on surveys, and the level of Personal Consumption Expenditure (PCE) over the past 5 years. The analysis shows that when the Money Anxiety Index increases, consumers respond immediately by reducing spending, and when their level of money anxiety decreased, consumers resumed higher spending in the same month. The Money Anxiety Index consists of
Conversely, when responding to consumer confidence surveys, such as the Thomson Reuters/University of Michigan Index, the lag time is one month after consumers have already acted. This means that when consumers report lower confidence level in the survey, they have already decreased their spending in the prior month, and when they report higher confidence level, their spending increased the month before. The raw data for this analysis is available upon request from email@example.com
The Money Anxiety Index measures the level of consumers’ financial worry and stress associated with their spending and savings pattern. The Money Anxiety 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. 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.
Dr. Dan Geller is a behavioral finance scientist and the author of the best-selling book Money Anxiety, which explores the financial behavior of consumers. Dr. Geller speaks about behavioral finance to groups and at conferences and is frequently featured on national TV and radio programs.