Latest increase in ACSI bodes well for economy

ANN ARBOR—The American Customer Satisfaction Index (ACSI) projects continued growth in consumer spending, based on results from the first quarter 2004.

The ACSI increased to 74.4 on the Index’s 100-point scale last quarter, up from 74.0 in the fourth quarter 2003.

The projected growth in household spending is based on the improvement in customer satisfaction, which historically fuels an appetite for further consumption, says Claes Fornell, director of the University of Michigan Business School’s National Quality Research Center, which compiles and analyzes the ACSI data.

"This is a healthy increase in Americans’ satisfaction with their buying experiences and is the continuation of a two-quarter upward movement," said Fornell, a marketing professor at the Michigan Business School. "Positive consumption experiences contribute to increased consumer demand and stimulate household spending.

"Based on the economy’s customer satisfaction performance in the first quarter, we can expect a fairly strong increase in consumer spending. And since it accounts for two-thirds of the Gross Domestic Product, it is vital to economic growth."

In general, a change in the ACSI in one quarter, adjusted for CPI, is followed by a similar change in consumption in the following quarter, Fornell says. The ACSI has proved to have a stronger relationship with subsequent quarterly consumer spending growth than household income, debt, interest rates or consumer confidence, he adds.

The Index bases its projections on 10 years of data demonstrating a link between customers’ buying experiences and their propensity for future spending. ACSI forecasts that second-quarter consumer spending growth will range between 3.9 percent and 4.4 percent, much depending on changes in the price of gasoline.

The service sector accounted for much of the overall increase in the ACSI, offsetting a decline in the transportation/communications/utilities sector. At the industry and company level, there is a mixed picture of who is strong and who is weak at satisfying customers, Fornell says.

Cable and satellite television remains unchanged at 61 following a three-point drop in 2002.

"The cable/satellite industry has shown absolutely no improvement in three years, and it was already a pretty weak performer when it registered a sharp decline in satisfaction three years ago," Fornell said.

Highlights and lowlights of the industry include:

· DirecTV and EchoStar are well ahead of the industry’s performance, both scoring 71, below the national average of all industries measured but much better than their cable TV rivals.

· Comcast and Charter Communications each increased one point to 56, but are substantially below where they were in 2001 (64 and 63, respectively).

Airlines also continue to disappoint passengers, falling one point to 66.

"In an environment of increasing fuel costs, intense competition from discount carriers, and continual labor challenges, it is not surprising that many of the airlines are having difficulty providing good passenger service," Fornell said. "Most carriers are looking for ways to cut costs. In fact, some have said that this is their top priority. Under these circumstances, it is not easy to improve customer service, especially when cost-cutting is directed at labor."

Highlights and lowlights of the airline industry include:

· Southwest remains the top-performing airline, despite a two-point drop to 73. Its performance shot up to 74 from 70 in 2002 and improved again slightly in 2003.

· USAirways, already in financial trouble, won’t like the news that the passengers on whom it relies for future business are less satisfied than last year, Fornell says. It is the worst-performing airline in terms of customer satisfaction, with a score of 62 (down from 64) and the airline has not broken 65 since 1998.

· Other major airlines are clustered relatively closely in the 64-67 range, well below the national average.

Because of the growing importance of cellular telephone service, the ACSI now measures both cell phone manufacturers and wireless service providers. The wireless service industry earned only a 65 on the ACSI’s 100-point scale, nearly 10 points below the national average of all industries measured, and well behind traditional fixed-line phone service. Manufacturers of cell phone equipment did slightly better at 69.

The wireless and cell phone manufacturers’ highlights include:

· Verizon Wireless emerged as the clear leader in a lackluster field, earning a score of 68. The wireless competition is substantially behind Verizon—with Cingular at 63, AT&T clocking in at 61 and Sprint lagging the industry at 59.

· The gap among cell phones is less substantial, with Samsung (73), Nokia (72), Kyocera (70) and Motorola (70) all clustered fairly closely together.

· The wireless industry scores below "traditional" fixed-line telephone service, which also was measured this quarter and fell one point to 71. This, however, is a full 10 points below what the telecommunications industry scored when first measured in 1994.

Other industries measured this quarter include parcel delivery service, energy utilities, hotels, hospitals, and the newspaper and movie industries.

Parcel delivery helped push the overall ACSI up with a two-point increase, from 79 to 81. FedEx, with a score of 83, is one of the stronger performers of the roughly 200 companies measured by name in the ACSI each year.

The energy utilities industry also varies little. The industry score currently stands at 72, dropping slightly from the previous year’s 73. However, there is considerable variation among individual utilities, ranging from a high of 81 for the Southern Company to a low of 66 for Pacific Gas & Electric.

The service sector’s strength was buoyed by a reasonably strong increase in hospital patient satisfaction, up three points over last year to 76. This is the highest score hospitals have ever achieved, and the first time they have scored above the national average.

Hotels, included in the services sector, dropped one point to 72. Hilton registered a strong gain, up three points to 77, virtually tied with Marriott, which has stayed steady at 76 for the past three years.

The newspaper industry, struggling through most of the ACSI’s 10-year history, surged four points to 68.

The movie industry also improved in the eyes of filmgoers, but only a little. The industry increased two points to 73, still well short of its high-water mark of 77 in 1995.

The ACSI is a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States. It is updated each quarter with new measures for different sectors of the economy replacing data from the prior year. The overall ACSI score for a given quarter factors in scores from about 200 companies in 40 industries and from government agencies over the previous four quarters.

The Index is produced by a partnership of the University of Michigan Business School, American Society for Quality and CFI Group, and supported in part by ForeSee Results, corporate sponsor for online scores, and Market Strategies Inc., a major corporate contributor.

Company scores and other information about the ACSI can be found on the ACSI Web at www.theacsi.org.