So far this year, consumers are exhibiting higher level of money anxiety resulting from economic uncertainty and lack of confidence in a sustained economic recovery. In January of 2016, the Money Anxiety Index stood at 62.8 climbing up to 64.0 in March and remaining there since.
The elevated level of money anxiety is causing consumers to reduce spending and put more money in savings. This is a normal reaction to economic and financial uncertainty rooted in our mechanism for self preservation. The decrease in consumer spending directly impacts GDP as 70 percent of it is made up from personal consumption.
Should the current level of money anxiety persist in June; it is very likely that the job market and GDP will continue to show weak results, which would lower the odds of a Fed hike in June. Moreover, if the Money Anxiety Index continues to increase the probability of a looming recession increases dramatically.
The Money Anxiety Index is an early-warning system to shifts in the economy. The 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. The Money Anxiety Index was developed by Dr. Dan Geller, a behavioral economist and the author of Money Anxiety.
The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings levels. 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.