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Index of Investor Optimism
Energy Prices Still Top List of Investor Concerns; Housing and Real Estate Worries Rising
Investor optimism plunged 14 points to a level of 73 in August, its third consecutive month in decline and its lowest level in a year, according to the UBS/Gallup Index of Investor Optimism. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
The Economic Dimension of the Index, which measures investors' feelings about the direction
of the overall US economy, dropped 11 points to 5 for the month of August, marking the
lowest level of optimism about the economy since August 2006, when it stood at -1. Yet,
investors remain hopeful about their individual investment portfolios, as the Personal
Dimension of the Index dipped by just 3 points to 68.
"The high-profile troubles in the real estate market, particularly the subprime sector, coupled with ongoing energy price concerns are fueling investor skepticism about the US economy. Meanwhile, signs of an emerging consumer credit crunch and growing fears of a recession are weighing heavily on investor sentiment," said Mike Ryan, Head of UBS Wealth Management Research, Americas.
While still top of the list of investor concerns, worries about higher energy prices have decreased slightly. In August, 64 percent say they believe energy prices are hurting the current investment climate "a lot," down from 70 percent who held this view in July.
But housing and real estate worries are now second only to energy prices as an investor concern, with 54 percent of investors believing the potential for a housing or real estate crash in some local markets is hurting the investment climate "a lot." This is a sharp jump from the 41 percent who felt this way in July and represents the highest level of concern about housing since tracking of this issue began in October 2005.
Investor anxiety is rising about housing and real estate markets, with 80 percent saying they believe economic conditions in the national residential real estate market are getting worse. That is up from 71 percent who held this view in July and is the highest level of pessimism about the national housing market since tracking of this view began in June 2006. Sixty-two percent of investors say conditions in their local real estate markets are worsening, up from 58 percent in July.
Investors fear that the problems in the subprime mortgage market will spread, with 59 percent feeling there will be a spillover into the overall mortgage market, while only 28% feel it will be contained. Investors felt that the credit crunch is squeezing even tighter, with 51 percent saying it is harder for Americans to get credit now than it was three months ago and 42 percent believing the crunch is hurting the investment climate "a lot."
Finally, 65 percent of investors believe the US economy is now either in a slowdown or a recession, up from 55 percent who felt this way in July and the highest percentage of investors to hold this view since October 2005.
These findings are part of the 113th Index of Investor Optimism, which was conducted August 1-15, 2007. To track and measure Index changes on an ongoing basis, new samplings are taken monthly. Dennis J. Jacobe, Chief Economist for Gallup, said the sampling included 804 investors randomly selected from across the country. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. Nearly 40 percent of American households have at least this amount in savings and investments. The sampling error in the results is plus or minus four percentage points.
For more than 60 years, the Gallup Organization has been a recognized leader in the measurement and analysis of people's attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup's current activities consist largely of providing marketing and management research, advisory services and education to the world's largest corporations and institutions.
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