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Salt Lake City — The Zions Bank Consumer Attitude Index (CAI) declined slightly in July, falling 2.4 points to 85.5 as Utahns become increasingly concerned with rising interest rates. This month’s national Consumer Confidence Index (CCI) also fell slightly, declining 1.8 points to 80.3.
Still, Utah’s CAI has risen nearly 10 points since the beginning of 2013 as attitudes have substantially improved towards the both the housing market and the labor market. Based on a comparison of the Zions Bank Present Situation and Expectations indices, Utahns appear to think that we are either at or nearing a high point in the economy. The Zions Bank Present Situation Index — an assessment of confidence in current business and employment conditions — increased in July, up 7.0 points to 84.4. Conversely, the Zions Bank Expectations Index — an estimate of consumer confidence in the economy six months from now — decreased 8.6 points in July to 86.2.
Utahns have always been significantly more optimistic about where the economy is heading rather than where the economy is currently at. The Expectations Index has been 25 points higher on average than the Present Situation Index over the past two years. Butwith the Expectations Index only 1.8 points ahead of the Present Situation Index, this month marks the closest the two indices have been since the inception of the Zions Bank CAI in January 2011.
Utahns may have less optimism about the future of the economy due to a fear of rising interest rates. Seventy-six percent of Utahns now think interest rates will increase over the next twelve months, an increase from 63 percent in June and 51 percent in May. Meanwhile, the 30-year fixed mortgage rate is currently at 4.58 percent, up from 3.59 percent at the beginning of May, according to the Mortgage Bankers Association. This jump, both in future expectations and the rate itself, reflects anticipation of the end of quantitative easing —the Federal Reserve’s policy of buying certain financial assets with the intent of keeping interest rate artificially low.
Housing continues to be a bright spot for the economic recovery. Despite rising interest rates, the proportion of Utahns who think home values will go up over the next twelve months increased for the seventh month in a row, and now rests at 65 percent. Moreover, the number of single-family homes sold by a Realtor in Salt Lake County in the second quarter climbed to 3,430 units, up 12.2 percent compared to sales in the second quarter of 2012, according to the Salt Lake Board of Realtors. Many economists have worried that rising interest rates would slow new home purchases, but so far, that does not appear to be the case. However, buyers may be purchasing their homes earlier than they had originally planned to avoid further interest rate increases.
In another expected bright spot for the economy, Utahns expressed more confidence in their wage growth this month than they did in previous months. Twenty-four percent of Utahns now think their total household income will be higher six months from now, compared to 21 percent in June. Further, 25 percent of Utahns think household income will rise faster than inflation over the next twelve months, an increase from 18 percent in June. This is an important indicator, given that consumer spending has largely been responsible for the ongoing economic recovery and comprises approximately 70 percent of the GDP.
“Speculation regarding the Federal Reserve’s policies is having a direct impact on consumer attitudes,” said Scott Anderson, president and CEO of Zions Bank. “What consumers should remember, however, is that although we may see interest rates rise, the Federal Reserve is only going to end quantitative easing once it feels the economy is healthy and on a great track to continue its recovery. The end of quantitative easing should not be feared —it is a necessary
step on the road to recovery.”
Zions Bank provides the CAI as a free resource to the communities of Utah. The monthly CAI summary reports are released at a monthly press conference, coinciding with The Conference Board’s national CCI release date. The reports are available online at www.zionsbank.com/cai. Analysis and data collection for the CAI are done by The Cicero Group/Dan Jones & Associates, a premier market research firm based in Salt Lake City. The August CAI will be released during a press conference at a local business at 10:30 a.m. on August 27, 2013.