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Economic Confidence Among the Affluent Rises Sharply
"CLEVELAND -- Economic confidence among affluent Americans regarding the overall state of the economy rose seven points this quarter, following a significant, 13-point decline last quarter during the 2004 election season -- according to the latest quarterly McDonald Financial Group Affluent Consumer Confidence Index results. This represents one of the largest quarter-to-quarter increases in two years.The overall score for the January Index was 55 out of 100 -- a seven-point (or 15%) increase since the last survey in October (48). The increase in affluent consumer confidence this quarter returns the Index to a similar level as one year ago (56 in January 2004).As a result of their positive feelings about today's economy, affluent respondents say they plan to increase their spending and investing levels over the next quarter, with 30% of affluent Americans saying they would put more money in the stock market over the next three months. Some 32% of business leaders polled say they plan to increase hiring levels over the next three months, a 15-point increase from last quarter.Although the current picture appears quite positive, however, affluent consumers still have concerns about the future of the economy due to a number of issues facing the country such as Iraq, a perceived real estate bubble and the national deficit."We found that confidence among the affluent severely declined during the Presidential election period as debates among the candidates brought issues like jobs and the economy to the forefront," said David Legeay, senior vice president, McDonald Financial Group. "Now, with the election decided, solid Gross Domestic Product growth and stock market gains in the last quarter of 2004, affluent Americans again appear to be very confident about the current state of the economy. Unlike previous quarters, when confidence has not necessarily translated into higher spending and investing intentions, in this quarter larger numbers of affluent Americans say they both feel more confident and plan to take action."The Index -- a quarterly measure of market sentiment -- is based on a national survey of randomly selected individuals with investable assets of $500,000 or more, and/or personal annual income of $150,000 or more. After dropping 17 points last quarter, confidence in the Standard & Poor rising over the next quarter has rebounded back to July 2004 levels. Fully 60% of affluent consumers in the survey said that they believe the S&P will rise over the next three months, up 17 points from October when 43% said so.Also in a dramatic shift from last quarter, 48% of affluent Americans now say they are more focused on wealth accumulation than on wealth preservation, up 25 percentage points from 23% last quarter.As a result, intentions to invest in the stock market over the next three months rebounded from their lowest point last quarter to their highest point in the survey; 30% of affluent Americans polled said they would put more money in the stock market over the next three months, up 12 points from last quarter and tied with the all-time highest level in the survey (October 2003).The percentage of those who say they would invest more of their assets in the stock market this year than last year jumped six points to 23%, up from 17% last quarter.Other indications of increased spending activity include:Intentions to take a vacation requiring air travel in the next three months jumped 16 points to 62% this quarter and are at a higher level than they were in both January of 2004 (60 %) and January of 2003 (60%).Plans to purchase a car rebounded six points this quarter to 15% up from 9% last quarter and are consistent with previous quarters.Intentions to make home improvements increased by seven points to 21% since last quarter.Plans to purchase a second home in the next three months are up five points since last quarter to 10%."This data reinforces what we are hearing from clients: The affluent are optimistic about the economy and this is translating into increasing spending and investing intentions," Legeay said. "As our clients re-evaluate their portfolios, we are advising them not only to focus on investing opportunities but also to take a broad, integrated approach to their financial plan and examine a full range of opportunities from charitable giving strategies and college saving plans to investments and cash management strategies."Some 32% of business leaders -- who represent 43% of those polled in the survey -- say they plan to increase hiring in the next three months. This represents a 15-point increase from last quarter, when 17% said they would increase hiring. Business leaders are defined in the survey as those who own their own businesses or are senior-level executives.In addition, the survey reveals an improved employment outlook among affluent Americans. In the current survey, 29% say jobs are "plentiful," up from 23% in October. The number of affluent Americans who say jobs are "hard to get" fell from 37% in October to 23% in the current survey.Although overall economic optimism has significantly improved since October and has returned to near all-time high levels, some doubts remain among affluent Americans about the future of the economy due to several issues facing the country, such as:For the third quarter in a row, the survey saw increased concerns over Iraq, with more respondents than ever before, 36%, saying Iraq was the most important issue facing the country today (up from 27% in October).46% of affluent Americans believe the situation in Iraq will contribute to a sluggish economy during the next four years, up from 36% last quarter.58% say they are concerned that a damaged American image due to the situation in Iraq will hurt U.S. international business, up from 55% last quarter.There is a high level of concern about the national deficit, with 70% of affluent Americans saying they are "very" or "somewhat concerned."57% think that the national deficit will have a negative impact on the economy over the next year.62% are highly doubtful that the national deficit will be cut in half over the next five years."In the Index, we ask respondents what they think is the most important issue facing the country today," Legeay noted. "This quarter represents the first time the national deficit showed up in a meaningful way. It is now one of the top causes for concern among the affluent, along with issues like the situation in Iraq."Real estate bubble fears are now on par with their highest point in the survey, with 56% of affluent Americans now saying there is a bubble. As a result, intentions to move assets into real estate remain low at 24%, slightly up from 20 % in October. Some 34% are concerned that rising interest rates will cause a significant drop in housing prices. The percentage of those who are "very concerned" jumped five points this quarter to 12 %.Legeay said, "Interestingly, our survey revealed that the affluent are more concerned about governmental topics like Iraq and the deficit having an impact on the stock market than corporate issues like unemployment and earnings, which we believe is a good indicator of their investing confidence," Legeay said. "The affluent seem to be at a point now where they are confident enough about the economic recovery and current economic conditions to move forward with spending and investing plans."As part of Cleveland-based KeyCorp, McDonald Financial Group offers integrated financial services -- including banking, estate planning, financial planning, retirement planning, brokerage, trust, individual asset management, insurance advice and services, and charitable giving counsel -- to affluent individuals in offices in 15 states. Securities are offered through McDonald Investments Inc.Visit KeyCorp: www.key.comĀ "