Columnist : Lincoln Institute

But forecast confidence indicators suggest a downturn is ahead

     Harrisburg, PA — Pennsylvania consumers are expressing their highest level of confidence in the state’s economy in over a decade, but there are signs that confidence levels have reached their peak.
The Pennsylvania Household Money Supply (HMS) Index, compiled exclusively for the Lincoln Institute of Public Opinion Research, Inc. by Sindlinger & Company, a national micro-economic forecasting firm, hit 59.8% at the end of June — its highest level since the mid-1980’s. The HMS Index has been rising steadily since the beginning of the year.
“Sindlinger’s Pennsylvania Household Money Supply Index allows us to gauge the actual financial well being of Pennsylvania households and couple that with individual household financial expectations, or confidence levels, for the coming six month period,” explained Lowman S. Henry, Chairman & CEO of the Lincoln Institute.
The Pennsylvania HMS Index began the year at 52.8%, rose to 55.6% in April, 57.0% in May, and 59.8% by the end of June. Nationally, the HMS Index stood at 59.5% at the end of June.
Despite the rosy confidence levels reflected by the HMS Index, Sindlinger said the four forecast confidence levels either leveled off or took a downturn at the end of June, signaling a cooling off of the U.S. economy.
“The Current Income Index had a sharp rise through the first half of the year,” Sindlinger explained. “The rise has come from multiple sources: the new tax code relaxing the tax on capital gains; the wealth effect of the equity (stock) market where people have actually cashed in some of their stocks; and the third factor, which is probably the most important as far as the business cycle is concerned, is better jobs and pay increases. The pay increases have come mostly from job switching rather than from pay raises in existing jobs.”
“Those factors have begun to level off,” Sindlinger continued. “I sense the fact that the Asian crisis is really trickling in, so people are starting to expect worse times ahead.”
While the Current Income Index and the Expected Income Index leveled off at the end of June, the Expected Employment Index and the Expected Business Index dropped among both stock owners and non-stock owners. “Whenever those two move down ahead of everything else, over the last 40 years, it has never failed we’ve always had a continuous downturn of everything,” Sindlinger concluded. “We’re headed for a peak-out in the business cycle.”
For a respondent household head to have positive Household Money Supply, he or she must report that: (1) Total combined annual household income is now up or the same as six months prior, and; (2) Total combined annual household income in the next six months will remain the same or be up from now, and; (3) In the next six months there will be more or the same number of jobs where the respondent works, and; (4) Business conditions in the next six months will be the same or better where the respondent lives. A negative response to one or more of the four key questions indicates that the respondent has negative HMS.
President Clinton’s personal popularity ratings have also begun to cool off. His positive rating in Pennsylvania peaked at 65.5% in April, but dropped to 63.4% in May and ended June at 62.1%. Nationally, 58.5% of consumers gave Mr. Clinton a positive rating at the end of June.
Federal Reserve Board Chairman Alan Greenspan’s job performance rating has remained relatively constant over the past three months. He scored a 62.3% positive rating in Pennsylvania in April, then dropped slightly to 61.8% in May and 61.2% in June. Nationally, consumers gave the Fed Chairman a 59.1% positive rating in June.
Complete results of Sindlinger’s polling, as well as all Lincoln Institute survey and focus group research can be found on the Lincoln Institute’s website at