A fourth-quarter survey of Orange County consumers isn’t a total referendum on the 2017 Tax Cuts and Jobs Act.
The 500 respondents weighed in before and after the bill’s passage.
But to the extent they were flexing their feelings about the biggest reform to the tax code in 30 years, they smiled wide.
The Chapman-Lowe Orange County Consumer Sentiment Index, composed of seven questions measuring consumers’ outlook on their own economic prospects and spending plans, and their take on the broader economy, came in at 102.3, a 1.4% hop from 101 in the third quarter. The biggest leap among the seven categories was in outlook for U.S. business conditions over the upcoming year.
“I see some improvement in consumer sentiment arising from tax reform,” said survey director Marc Weidenmier. The survey is a team effort of Chapman University and Claremont McKenna College.
The economist noted that “respondents had to balance the positive effects of the [tax] bill with lower income taxes against the limitations on the deductibility of state taxes and mortgage interest.”
More proof the tax cuts are goosing local optimism came in the leap to the top of the index by the self-employed.
Among employment classes surveyed and separately indexed—eight groups in all—are full time, self-employed, unemployed and retired. The index of the self-employed rose from 95 in the third quarter to 107 in the fourth, up 13%.
The tax cut won’t only save most small businesses money, simplification will save the 1- to 10-person operations something more important: time.
“Simplification will reduce the amount of time small business owners spend completing and filing their tax returns,” said Keith Hall in The Hill magazine. “It could be an increase of 2 percent of time and productivity … more time for small business owners to spend running their business and strengthening our overall economy.”
Hall is a CPA and chief executive of the National Association for the Self-Employed trade group.
Uncertainty
Another standout in the survey were Generation Xers. Their outlook popped from 99 to 107. Again, tax impact.
“Tax cuts are likely for this group,” Weidenmier said.
It’s noteworthy that the survey of consumers here and in Los Angeles peaked in 2016 and 2015, respectively, while conditions, reflected in lower jobless rates and higher home values, have since improved.
Here Weidenmier cites uncertainty over how tax reform will play out, especially the limits on state and local tax deductions, and big policy issues, such as immigration and trade.
The L.A. index trailed OC 96 to 101 in the third quarter; L.A.’s fourth-quarter survey hasn’t been released yet.
The Consumer
The local consumer-sentiment surveys are new—consumers here were heretofore tracked nationally by the University of Michigan and the Conference Board, but only through specific metrics, such as housing starts and taxable sales.
“Consumption spending makes up 70% of the U.S. economy,” said Weidenmier, a former research fellow with the National Bureau of Economic Research. Other periodic forecasts here, such as California State University-Fullerton’s Business Expectations Survey out of its Mihaylo business school, and Chapman’s annual forecasts and Purchasing Managers Survey out of its Anderson Center, draw on information provided by managers, business owners and executives.
Data for the consumer sentiment index was first collected in the second quarter of 2016. Those conducting the survey say it’s a random sample of consumers reflecting the demographic makeup of OC.
