Americans’ financial outlook reaches 9-year high despite global economic turmoil

The second quarter of 2016 has seen its share of disruptive political events, including the contentious U.S. presidential race and the Brexit referendum, which led the Dow to briefly plummet by 900 points.

Nevertheless, Americans’ financial outlook remains positive, according to a proprietary AICPA measure. This quarter, the Personal Financial Satisfaction Index (PFSi) reached its highest levels since the third quarter of 2007.

The PFSi now stands at 17.1, up 3.4 points from last quarter and 1.2 points from this time last year. It was buoyed by a 5-point rise in the AICPA CPA Outlook Index, a measure of CPA executives’ sentiment toward their organizations’ economic performance. The PFSi received a further boost from rises in job openings and home equity, and a drop in loan delinquencies.

The PFSi reflects investors’ optimism, said Kelley Long, CPA/PFS, a member of the AICPA’s National CPA Financial Literacy Commission.

“Low mortgage rates combined with great job opportunities are giving people confidence to make some moves that maybe they’ve been putting off,” she said in a news release, “and this is a great sign for continued economic prosperity.”

However, geopolitical instability may shake Americans’ confidence in the economy further down the road, said Michael Eisenberg, CPA/PFS, another member of the AICPA’s National CPA Financial Literacy Commission.

“Individuals are working and have low interest rates. Home prices are up, investments are up,” he said. “That’s the good news. But it’s offset by the geopolitical news.” The impact of the presidential election on economic sentiment, he said, is difficult to predict—no matter which candidate wins.

Likewise, Eisenberg said, it’s still too early to tell how the Brexit referendum will affect U.S. economic outlook. Though the U.S. stock market rebounded quickly from the shock of the Brexit vote, the economy may yet experience some repercussions, he said.

“Brexit is a work in progress,” he said. “It could still lead to financial impacts that could have a trickle-over effect on the U.S. economy.” In a news release, Eisenberg observed that “many big financial companies may cut their hiring plans” in Brexit’s wake.

Furthermore, as the Brexit vote occurred late in the quarter, the PFSi may not have captured its full impact.

The PFSi is calculated as the difference between two subindexes, the Personal Financial Pleasure Index and the Personal Financial Pain Index. The Pleasure Index consists of four equally weighted factors: the AICPA CPA Outlook Index, a measure of CPA executives’ sentiment toward their companies’ economic futures; the PFS 750 Market Index, a proprietary stock index; home equity per capita; and job openings. The Pain Index also comprises four equally weighted factors: inflation, personal taxes, loan delinquencies, and underemployment.

The Pleasure Index rose 2.1 points this quarter. Job openings and home equity both increased by 2 points. The Pain Index dropped 1.3 points this quarter, partly due to a 4-point drop in loan delinquencies. Inflation was down by 1 point this quarter, while personal taxes and underemployment remained static.

Eisenberg said he counsels clients to focus more on their personal financial situation than on what’s happening in the world at large. “Spend less time worrying about what you can’t control,” he said. “You can make better decisions based on the small picture.”

—Courtney L. Vien (cvien@aicpa.org) is an associate editor for the AICPA.