The first Lowe Institute Los Angeles Consumer Sentiment Index (“Index”) unveiled today shows a 12 percent decline in the fourth quarter 2016 versus third quarter 2016 results, a period when there was a sharp rise in consumer sentiment. This is important data as the Index provides guidance on future consumption activity by Los Angeles area residents, key to assessing the overall prospects for the local economy. Consumption accounts for, on average, 70 percent of all U.S. economic activity and its importance cannot be overstated.
“This is a notable drop in consumer sentiment though it is just for one quarter. If the first quarter 2017 results also drop then we can view this as a downward cycle,” noted Marc Weidenmier, Director, Lowe Institute of Political Economy. “Right now, businesses should be cautious and take a ‘wait and see’ approach before making major inventory commitments. For governments relying on sales tax revenue, it’s not time to redraw the budgets but time to pause and consider the potential ramifications if we head into a period of decreased consumption.”
National consumer sentiment has been measured by the University of Michigan since the 1950s and its predictive abilities have led to this sentiment series being included in the government’s index of leading economic indicators. Los Angeles County has a population of more than 10 million and is the third largest metropolitan economy in the world. The Institute deemed this a region that could benefit from its own consumer sentiment survey.
“The Index serves as a timely source of information crucial to assessing the pulse of the local economy but also as an example of how localized knowledge can be captured and utilized to improve forecasting and decision making,” said Robert J. Lowe, founder of the Lowe Institute and Chairman of national real estate company, Lowe. . “The fourth quarter results bear out the need for Los Angeles County data as the national consumer sentiment survey showed an uptick during this same period.”
Among the factors that can drive differences from the national survey is Los Angeles’ multicultural and diverse economy that is not reliant on any one industry, its position as a gateway to the Pacific Rim, and other business and economic variables that are distinct to the region. “Another factor in Los Angeles may be the ‘Trump effect’ as the majority of Los Angeles County is deeply Democratic with policy views that are opposite those of the new administration,” said Weidenmier. ”The fourth quarter survey was taken in December, after the election when Los Angeles area residents were absorbing the news following the surprising election outcome.”
The decline in Los Angeles consumer sentiment was across all ethnic groups – African American, Asian, Hispanic, Caucasian and other. The decline was also consistent across most age groups with the exception of senior citizen (65+) respondents. There was a significant uptick with senior citizens and a very small uptick in the 45-54 age category.
The survey also asks for respondent’s employment status and includes full-time and part-time employed, self-employed, homemaker/domestic engineer, students and unemployed. There was a significant decline in consumer sentiment across all six groups. There was a slight uptick in consumer sentiment among retirees.