[October 14, 2019]

California Consumer Sentiment Index - An Economic Indicator for the Country's Most Populous State - Debuts Showing an 8.5% Decline

The Lowe Institute of Political Economy at Claremont McKenna College and Chapman University have unveiled the Chapman-CMC California Consumer Sentiment Index (California Index), a survey of 2000 households from across the state regarding business conditions and their personal financial position. The team began gathering survey data in the second quarter of 2018 and now with six quarters of results the California Index is being released publicly with results for the third quarter 2019, an index of 91.5, an 8.5% decline over six quarters from the starting value of 100.0.

"The decline in confidence is most notable when respondents were asked about national and regional business conditions. Consumers are increasingly likely to indicate that national business conditions will deteriorate over the next year and that local conditions will harm their family's financial situation," said Cameron Shelton, Director of the Lowe Institute of Political Economy and McMahon Family Associate Professor of Political Economy at Claremont McKenna College. "We believe the California Index is not only valuable to the state but to the nation as often California leads the U.S. business cycle." Shelton notes as examples the dot.com recession of the late 1990s and the decline in California's economy ahead of the Great Recession of 2008-2009.

Among the key findings, California consumers are less optimistic that the coming year will be a good time to look for a new job, down 8.7%, and are less inclined to think now is a good time to purchase a new automobile, down 7.3%.

A closer look at the drivers of deteriorating confidence shows that whil the labor market remains strong there has been a steady softening. This is shown in responses to whether their employer is hiring workers like them, laying off workers like them or neither. Since the second quarter of 2018 the ratio of those hiring to those laying off declined from 4:1 to a little under 3:1. However, there was a marked turn in the third quarter 2019 as the ratio of hiring to lay-off jumped to 4.5:1

"The California labor market has roared back with the most notable changes in the Sacramento area with the Coastal Southern California areas and the Inland Empire also quite strong," observed Shelton. "Within the state only the San Joaquin Valley in Central California continued to decline."

Another valuable indicator is the survey question regarding whether work hours increased or decreased. In the third quarter this indicator rose impressively to 5:1 from averaging around 2:1 in the year between June 2018 and June 2019.

Political affiliation often plays a role in sentiment with those whose political party is in charge nationally more optimistic than those whose party is out of power. Over the past six quarters, Californians who lean Democratic have been deeply pessimistic, with an index in the low 80s. On the other hand, Californians who lean Republican have been gradually coming down from a high of 126.7 in the second quarter of 2018 to 116.7 in the second quarter of 2019. The opening of impeachment proceedings has moderately revived Republican-leaning respondents, whose sentiment rose 3.3%, and further depressed Democratic-leaning respondents with a sentiment decline of 5.3%.

The California Index provides guidance on future consumption activity, a key economic indicator as consumption accounts for, on average, 70% of all U.S. economic activity. The California Index was created to be an economic tool for government, business and civic leaders to aid in near- and long-term planning. Further, California is the fifth largest economy in the world. The California index therefore provides insight into future economic activity in one of the world's largest and most dynamic economies.

About the Survey

The Chapman-CMC California Consumer Sentiment Index is produced jointly by the Anderson Center for Economic Research at Chapman University and the Lowe Institute of Political Economy at Claremont McKenna College. Each quarter 2000 randomly chosen households from across the state are asked seven questions about business conditions and personal financial outlook. The sample is representative along five dimensions: geography, income, ethnicity, age and gender. Using the same time-tested methodology as national consumer sentiment indices, the team calculates a quarterly index. The California Index survey was launched in the second quarter 2018 with an initial value pegged to 100.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191014005510/en/

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