Consumer perception of economy remains negative

The latest information from two of TNS' banking research studies show consumer perceptions of the U.S. economy remain predominantly negative. According to the studies, consumer perception of the economy is virtually unchanged since September, with 64 percent holding a negative position. But while consumer perception remains low, business executives, with revenues between $3 million and $2 billion, are slightly more optimistic.

After feeling slightly more positive about the near-term prospects for the economy in September, consumers' outlook shifted in a more negative direction in December. According to the study, a vast majority of consumers (66 percent) strongly anticipate that they will be cutting their personal spending over the next six months. "Consumers have become anxious about the high rate of unemployment, rising interest rates, the possibility of price inflation, more foreclosures, and flat or even wage deflation," said Glenn Staada, vice president of TNS, "We're seeing that consumers are more often negative, not positive, about their personal situation and components of the economy in the coming months."

While executives are more likely than consumers to say the economy will improve in coming months, the credit situation has nearly all still in cost cutting mode. 95 percent of businesses will continue to aggressively seek ways to cut costs in the next six months, with 52 percent saying this includes labor costs.

Despite their optimism, executives are resigned to the opinion that the unemployment picture in the U.S. will get worse before it gets better.

The Credit Crunch and Small Business

Amid the widespread crisis of this past year, even healthy small businesses felt the squeeze and some are still feeling it. The demand for fresh credit is great, yet the current credit shortage continues to exacerbate cash shortfalls for businesses, causing nearly all to remain in cost cutting mode well into 2010. Thirty-four percent (34 percent) of small businesses are anticipating that they will have trouble accessing the credit they need. "With credit not flowing, businesses continue to struggle with a diminished cash position and have concerns about their ability to acquire the credit necessary to bridge the gap," Staada added. "With consumers and businesses hunkering down, sensitivity to rates, fees, and other pricing issues will remain a top issue for bankers in 2010."

The impact of the credit crisis proves to be a significant pull on job creation during the economic recovery. This was reinforced last Friday when the U.S. government reported that U.S. employers unexpectedly cut 85,000 jobs in December, cooling optimism on the labor market's recovery. Furthermore there doesn't appear to be an end to labor cuts, especially among smaller businesses.

The Impact of TARP and What Lies Ahead

Consumer attitudes have not changed since June of 2009 when 59 percent felt negatively toward government bailout of large corporations, though most agree, the stress tests for Financial Services firms, credit card regulations, and limits on executive compensation have been favorable to long-term stability.

While still not well-received, TARP is now less likely to create negative impressions of banks associated with the program than it was in Feb '09.

The percentage of businesses that feel TARP helped to stabilize the crisis increased from 5 percent in Feb '09 to 22 percent in Dec '09. However, only 6 percent say that TARP takers are providing easier access to credit and 55 percent feel that the banks have used TARP funds for purposes other than to provide credit to consumers and businesses. Staada went on to add, "The government programs helped keep the economy together and promoted the beginning of a recovery, so there isn't this negative stigma to them now as when they first were introduced. However, the banks aren't out of the woods yet. Most businesses feel that banks have used taxpayer money for purposes other than unfreezing credit. Given this finding, big bonuses at a time where credit is still not flowing to small businesses will continue to drive negative sentiment, especially toward the largest banks."

Bank Image Issues

The media continues to fuel negative sentiment towards banks, with 43 percent of consumers and 50 percent of business executives saying a recent news story has left them with a negative impression of a bank or banking, in general. And, business clients of the Top 5 largest banks in the country are most likely to be left with a negative impression, at 58 percent "Multi-regionals and smaller banks have a PR advantage currently." concluded Staada. "These banks should be looking to exploit this advantage. The top 5 banks need to demonstrate the ability to provide the levels of stability, credit, and service currently associated with smaller banks, but powered by the breadth of solutions, ability to customize, and scale of resources that only a large bank can maintain."