LARKSPUR, Calif.—The 3.4% increase in orders for durable goods during June indicates that consumers currently have less financial anxiety, a new report indicates.
During periods of high money anxiety, consumers cut back on purchases of durable goods, such as cars and appliances, in a phenomenon known as "durable diet," explained Dan Geller, a behavioral finance scientist who also assembles the Money Anxiety Index.
“Even excluding the transportation sector, orders for durable goods increased by 0.8%--the first such increase in almost a year according to the U.S. Department of commerce,” Geller said.
The link between consumers' money anxiety and their spending on durable goods is empirically supported, noted Geller.
“During the 2008-2009 recessions, when the Money Anxiety Index, which measures consumers' level of financial anxiety, reached a high of 94.4, consumers reduced spending on durable goods by as much as 16.3%,” he said. “Conversely, the June increase of 3.4% in durable goods comes at a time when the Money Anxiety Index stands at 64.8—a decline of 7.3 index points from the same month last year.”
Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid-1960s. The Money Anxiety Index is highly predictive. It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.