Special report: ING-ASR US Household Finances Survey

1 This ING – ASR Household Finance Survey is the thirteenth ‘wave’ in a series of proprietary surveys to conduct ‘a deep dive’ into US household finances and behaviours.

2 The poll was launched back in June 2009, near the low point of the Financial Crisis. It has allowed tracking of the balance-sheet shock from the bursting of the housing bubble and its impact on the US household sector in a timely manner.

3 This survey goes beyond the ‘typical’ consumer confidence survey in that it attempts to explore the motivations and the perceptions underlying household saving and borrowing decisions of the US adult working population (aged 25-65).

4 The October survey is a positive result, but sentiment does not appear to have progressed from the poll conducted in January. Chart 1 (see the front page) takes seven metrics from the survey and creates a US Household Survey ‘snapshot’ indicator. Despite lower energy prices and lower unemployment, this summary indicator has not improved on January’s reading.

5 When you look back at the past 5-6 years, the unemployment rate has halved, employment has risen 10%, real GDP is up 12%, oil prices have fallen 40%, bond yields have halved and the stock market has doubled. This has been topped off by the rebound in house prices – up 35% since the trough of Spring 2012.

6 And yet, despite all this good news, US households remain cautious, and in many cases, worried about their circumstances. A net 66% continue to worry about their financial situation, although that figure is down from the net 80% recorded back in June 2010 (see Chart 2). That said, the net balance reporting that they are better off than a year ago continues to creep higher, and a net 20% expect their financial situation to be better a year from now (see Chart 4). But what is clear is that for a third of the panel, their financial situation is no better than a year ago and is not expected to improve over the coming year either (see Chart 5). There is a still a persistent background worry about inflation, and what is striking is the way that healthcare costs are becoming a growing source of concern (see Chart 6).

7 The economy has disappointed this year. We know that consensus GDP growth expectations have been revised down, and the survey shows an abrupt reversal in perceptions of economic conditions (see Table 8). Respondents still struggle to find positive words to describe the US economy at this time. Only 14% of our panel use words like “booming” or “growing” (see Chart 7).

8 One positive development is the improvement in personal income over the past 12 months, together with positive expectations for the coming year. But job security has still to pick up. Of those in employment, the net balance that believes their job to be secure is no different from June 2009 (see Chart 10). This is an extraordinary evolution.

9 Another positive development is that people are saving more or – to be precise – fewer people think they are “saving too little” (see Chart 12). There are also signs that risk appetite is still on an improving trend. The proportion of the panel willing to endure occasional losses and prepared to take substantial risk has been on an improving trend for over two years – although it pulled back in the most recent wave (see Chart 16). Again what is striking is that we can see still a core of risk aversion that has not disappeared. 39% of those polled are not prepared to take any risks with the savings – practically unchanged since June 2009.

10 When it comes to investments, cash is still perceived as the “least risky” asset class (see Chart 17) even when it is held in a bank. Bonds are seen as the second safest asset – followed by gold, real estate and then equities.

11 The Financial Crisis does seem to have transformed people’s attitudes to debt. The net balance of respondents that say they have a mortgage has fallen from 13% in June 2009 to a minus 6% today – and the pattern is similar for non-mortgage borrowing (see Chart 20). 34% of our panel have no debt – up from 21% back in June 2009 (see Chart 19). And the lack of credit availability does not seem to be the constraint it was back in 2009-2011 (see Chart 22).

12 As the Fed is poised to raise interest rates, we explore how US households might respond. Interestingly, more people think that interest rates are “too low” than “too high” (see Table 25). Many believe that interest rates will be higher a year from now (see Table 26). It will probably encourage people to save more – but interestingly 44% reply that it will make no change to their behaviour (see Table 27). Of those with debt, 34% report that higher interest rates will make no change, but 31% said that they would try and pay off some of their borrowings (see Table 28).

13 The positive impact on household balance sheets of the recovery in house prices cannot be overestimated. A net 62% of homeowners now believe their house is worth more than they paid for it, while a net 38% of those with a mortgage believe their house to be worth more than their mortgage (see Chart 31). This represents a transformation of the situation three years ago. 84% of the survey’s panellists not only think house prices have risen over the past year, but they also believe that they will increase next year too.

14 Income inequality remains a major issue. For the fourth wave in a row, 60% believe that the income gap between rich and poor is greater than five years ago, while 61% believe that gap has become too large (see Table 35). Just under half the panel believe both statements to be true (see Table 36). Of those that believe the income gap to be a problem, 38% are independent/unaffiliated voters, while 33% are Democrats. Of those that do not believe it to be a problem 52% are Republicans.