Survey: Affluent Americans' Top Concerns Shift from Economy to Terrorism

CLEVELAND – In the wake of the London subway and bus bombings in July, top concerns among affluent Americans have shifted from the economy to terrorism, safety and security, according to the latest quarterly McDonald Financial Group Affluent Consumer Confidence Index results, released today. Affluent Americans now view terrorism as the number one issue facing the country, with 32 percent of respondents choosing terrorism as the top national concern, doubling from 16 percent who said so last quarter. The majority of polling for the survey was conducted in the aftermath of the July 7 bombings – beginning on July 6 and concluding on July 15, 2005.

Although economic confidence among affluent Americans regarding the overall state of the economy rose two points this quarter following a five- point decline last quarter, the survey found that affluent Americans’ personal intentions to spend and invest have slipped, after maintaining strong levels the past two quarters.

The overall score for the July McDonald Financial Group Affluent Consumer Confidence Index was 52 out of 100 – a two-point (or 4 percent) increase since the last survey in April (50). In addition, 44 percent of respondents say the national economy is excellent or good, up from 39 percent who said so in April; and 54 percent say the economy is heading in the right direction (up from 53 percent in April).

David Legeay, senior vice president, McDonald Financial Group, said, “It’s noteworthy that in the aftermath of the London bombings – the period during which the majority of our polling was conducted this quarter – affluent Americans’ concerns shifted dramatically from the economy to terrorism, safety and security. These new fears might explain why the affluent are showing caution in terms of spending and investing, even though they expressed improving confidence in the overall economy. These sentiments mark a shift from past years, when caution about spending and investing was primarily motivated by uncertainty about the future economy.”

The McDonald Financial Group Affluent Consumer Confidence 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. The poll was conducted by independent research firm Penn, Schoen & Berland between July 6 and July 15, 2005, representing the eleventh wave of testing for the survey, which debuted in January 2003. The Index represents McDonald Financial Group’s ongoing effort to gain real-time insight into the attitudes and concerns of its target market.

Terrorism, War in Iraq Top Concerns Among Affluent, Replacing Economic Doubts
In a reversal from last quarter, affluent Americans in the survey are more concerned about terrorism, safety and security and the war in Iraq than they are about the national economy.

Concerns about terrorism have returned to near all-time high levels in the survey, not seen since April 2004 results – one year after the initial invasion of Iraq and in the midst of the 2004 presidential campaign season – when 34 percent saw terrorism as the nation’s most pressing issue (compared to 32 percent this quarter).

In contrast, 11 percent surveyed believe the economy is the most important issue facing the country, down from 17 percent who said so last quarter. Fewer affluent Americans than ever before in the survey, 7 percent, find the national deficit to be the biggest national concern. Additionally, a majority of respondents, 55 percent, believe the government should focus on security at home instead of the domestic economy (39 percent).

According to affluent respondents, the war in Iraq is still the second most important issue facing the country today. Twenty-two percent of respondents see the Iraq conflict as the nation’s most pressing issue, up from 21 percent in April, yet down from its height of 36 percent in January 2005.

Despite Increased Optimism, Affluent Show Caution on Personal Spending, Investing
Even with the improvement in overall economic optimism, this quarter’s MFG survey results revealed increased caution and a downward trend among the affluent when it comes to personal spending and investing intentions. Key findings include:

• Luxury spending intentions are down, with 5 percent of respondents saying they will increase luxury spending this quarter, compared to 10 percent in April; 16 percent plan to decrease spending, up from 15 percent in April.
• Spending on summer family vacations is flat, with 62 percent saying they will spend the same amount this year as last year, 17 percent saying they will spend more and, 21 percent saying they will spend less.
• New and second home purchases are down to 6 percent and 5 percent, respectively, declining from 7 percent for both in April.
• Plans to buy a car are down, with 12 percent of respondents indicating that they plan to purchase a vehicle in the next three months, down from 15 percent last quarter.

Confidence in Stock Market Improves but Affluent See Real Estate as Best Short-Term Investment, Despite Continued Bubble Fears
Although spending and investing intentions among the affluent are down this quarter, the July MFG survey saw an improvement in affluent Americans’ confidence in the stock market. However, respondents still see real estate as a better short-term investment, even though they believe there is a real estate bubble.

A majority, 52 percent, believes the S&P will rise over the next three months, up from 48 percent who said so last quarter, also revealing a general upward pattern over the last four quarters. Despite this confidence in financial markets, affluent intentions to increase investing in the stock market are down 7 points from last quarter, with 23 percent indicating that they plan to put more money in the stock market over the next three months (compared to 30 percent in April).

Instead, survey respondents perceive real estate as the best short-term investment vehicle, with 35 percent saying real estate will offer the highest rate of return over the next three months compared to stocks (24 percent) or mutual funds (12 percent). These results are on par with the April survey in which 37 percent chose real estate, 26 percent chose stocks and 11 percent chose mutual funds.

Few in the survey, 34 percent, believe local housing prices have peaked and 58 percent say national housing prices have not yet peaked (versus 28 percent who think they have). The majority (55 percent) of affluent Americans believe the housing bubble will burst within the next two years. Another 24 percent believe the bubble will burst sometime beyond the next two years, with the remainder unsure of when it would occur.

Business Owners and Decision Makers in Survey More Optimistic About Economy; Plan to Add More Jobs; Have Increased Capital Spending
Business owners and decision makers, defined in the survey as those who are owners, principals or senior executives at companies, view the national economic outlook more positively than the general affluent population. This is reflected by the overall economic confidence of business owners (53) and business decision-makers (57) versus the general affluent population this quarter (52.)

Additionally, 83 percent of business owners and decision makers – who represent 51 percent of those polled – say they are currently adding more jobs than they were at this time last year. For the most part, this group reports it has held capital spending steady, but 31 percent say they have increased capital spending over the past quarter.