Affluent Signal Positive Outlook for Economy, Personal Wealth, and Spending in New Survey
Indicates Good Potential for Increased Spending; Contrary to View of Some Researchers
While some researchers are currently expressing caution about the future spending plans of the affluent and luxury consumers, a new survey by the American Affluence Research Center shows strong improvement in their 12 month outlook for the economy, the stock market, and their personal wealth.
This optimism is reflected in their plans to increase spending for major items (such as autos and home remodeling) and certain products (such as vacations and home furniture) that are tracked in each of the twice yearly surveys.
The stronger spending was even evident in the reported expenditures for December holiday gifts. A few more of the affluent bought holiday gifts (and spent almost 25% more on average) than what was estimated in the fall 2013 survey of the American Affluence Research Center.
The index for future business conditions (117) rose a strong 12 points, and the index for change in the stock market (119) increased a strong 13 points over Fall 2013. Both are well ahead Spring 2013.
Index values range from 0 to 200 and are compiled by subtracting negative feedback from positive. The value of a neutral response is 100. An index value of 100 means equal positive and negative feedback.
The composite ACE 12-month Economic Outlook Index (which is the average of the 12- month outlook for business conditions, the stock market, and household income) rose a strong 13 points above the Fall 2013 survey and returned to positive territory (109) and its highest level since Spring 2012 (126).
The expected change in after tax personal income (index of 90) rose a strong 12 points from Fall 2013 and is 14 points above Spring 2013. Now in neutral territory for the first time since 2012, this index has not been in positive territory since Spring 2012 (103). Equally, if not more important, almost half (46%) expect their net worth (index of 132) to be higher in March 2015.
Spending plans for the eight major items and the indexes for the change in spending for the 17 products and services tracked by these surveys are about the same or a little stronger than the prior two surveys in most cases. A substantial amount of additional potential purchases of the 8 major items are represented by the consumers that have yet to decide about a new auto, a cruise, a remodeling project, and the acquisition of a primary or vacation home.
The absence of plans for major expenditures (“none of the above”) at 45% is a big improvement from recent surveys and a return to pre-recession levels.
Of the 17 product categories tracked for change in spending plans, four increased to positive territory, five are in the neutral range, and eight are in negative territory, suggesting a decline in spending. All but three categories were essentially equal to or stronger than in Fall 2013.
Expectations regarding future income and net worth influence and/or correlate with spending plans. For example, the average index for changes in spending plans is 19 points higher (92 versus 73) for those expecting an increase or no change in their income versus those expecting a decline in income. The difference is 25 points (90 versus 65) based on net worth expectations. Similar differences are evident in the plans to acquire one of more of the eight major items.
With only 36% of the affluent planning to defer or reduce expenditures during the next 12 months, this represents an improvement of 8 percentage points from Spring 2013 and essentially no change (one point improvement) from Fall 2013.
Some of the highlights of the special topics covered in this survey include evidence of stronger spending by the affluent for December 2013 holiday gifts than what was estimated in the fall 2013 survey. Total gift expenditures were estimated to be about $30 billion.
On average, 46% of the affluent have taken a cruise of 3 nights or longer during the past 10 years. The cruise industry association estimates less than 4% of the U.S. population have ever taken a cruise.
Experience and familiarity with the 19 cruise brands listed in the survey, especially the luxury brands, were both low.
This data illustrates the importance of screening for respondent usage, ownership, and familiarity in any type of brand rating research. It appears that much brand research should be used with caution, as it does not screen respondents in this way or distinguish between the responses of those with experience or knowledge of the brand and those that do not.
A complimentary copy of the 52-page, 41-exhibit report is available to the media.
Key findings and highlights of the survey can be viewed here. The survey is based on a projectable national sample of 330 respondents representative of 11.4 million U.S. households with a minimum $800,000 net worth. The respondents reported an average income of $268,000 per year and average net worth of $3.1 million. The average value of their primary residence is $1.1 million.
About Us: Established in 2001 and with an exclusive focus on the affluent market, The American Affluence Research Center conducts the original and only continuous twice-yearly tracking studies of the mood and future spending plans of the wealthiest 10% of U.S. households based on net worth. AARC has become a recognized authority and a credible source of reliable insight and marketing information about the values, lifestyles, attitudes, and purchasing behavior of America’s most affluent consumers
PS There are at least 5 good reasons why researchers arrive at different conclusions about the spending outlook of the affluent and luxury consumers.
- Net worth is more stable than income as an indicator of wealth (and attitude toward spending) according to research by the Federal Reserve Board and the Internal Revenue Service. Our twice-yearly surveys are the first and only continuous tracking studies of the wealthiest 10% of households based on net worth.
- Some researchers define affluent and luxury consumers starting at $100,000 annual income. This level of income will not go far, especially for a family in a major city on the east and west coasts.
- Some researchers ask respondents to recall and reconstruct past spending for “luxury” products and services. Our surveys rarely ask for details about past behavior as we focus on the future outlook and spending plans of the affluent.
- Most researchers ask about spending for “luxury” products and services without specifying the price points that define “luxury” for specific types of products. Our surveys have demonstrated that “luxury” is a very ambiguous word that means different things to different people. We have also found that there is a big difference between affluent consumers and luxury consumers. It is very risky to lump them together.
- Most research of the affluent is done among online panels of people who agree to fill out frequent surveys for very small incentives. We do not believe such people are representative of the truly affluent. We conduct mail surveys of a sample drawn to be projectable for the universe of the wealthiest 10% of U.S. households based on net worth.