While many outside observers have correctly been arguing that the Fed's third mandate, that of the "wealth effect" has done little if anything to improve the lives of those not at the very top of the wealth food chain, there has been no confirmation of this "speculation" from the Fed. Not for much longer though. In its first quarter community outlook survey looking at the economic factors of services focused on low- and moderate-income households in the Third Fed District, the Philly Fed finds the the lower and middle classes are not only not benefiting from the Fed's financial experimentation, but that they are in fact being adversely affected by changes in the broader economy from Q4 2010 to Q1 2010 as the table below demonstrates. As the Fed confirms: "Overall, the negative trend identified in the first Community Outlook Survey in January 2011 continued. All diffusion index values remained below 50 except for demand for service providers’ services. All seven indicators for this survey were below the future expectations reported by respondents to the previous survey." In other words, while the lower and middle classes, as proxied by services geared toward them, continue to hold on the "hope and change" their current existence and living conditions are deteriorating.

The table below says it all:

Note the red change in current conditions between Q4 2010 and Q1 2011.

And in case the table is insufficient, here is summary.

The diffusion index for the availability of jobs, at 47, indicates that service providers had a slightly negative view of the availability of jobs in this survey. Although still unfavorable, the index is 7 points higher than it was in the previous survey. Additionally, respondents had more favorable expectations for the availability of jobs over the next three months; that index stands at 64, compared with a diffusion index of 60 when respondents were asked about future expectations in the previous survey. However, the index of their responses about the availability of jobs in this survey, at 47, did not meet the future expectations they indicated in the previous survey (60).



Respondents reported a decline in the availability of affordable housing in the current survey as they did in the last survey. The majority of respondents indicated that there was no change in the availability of affordable housing (60 percent), but many more reported a decline (32 percent) than an increase (8 percent), resulting in a diffusion index of 38, similar to the last survey’s result (39). Expectations three months from now are neutral (50) and close to the index for expectations from the previous survey (48), although the diffusion index of 38 in the current survey did not meet the future expectations (48) from the previous survey.



As in the previous survey, respondents have an unfavorable opinion of their clients’ financial well-being and access to credit. The diffusion index for financial well-being was 21 for this survey, similar to the last survey’s index of 23: Only 1 percent of survey takers saw their clients’ financial well-being increase, while 59 percent saw it decrease. Relative to the diffusion index from the current survey (21), the index of expectations about clients’ financial well-being three months from now is higher (41), but that value is still under the 50 mark, indicating that respondents are still somewhat pessimistic. Moreover, respondents had similar future expectations in the previous survey (42).



Attitudes about their clients’ access to credit continued to deteriorate, as the diffusion index fell from 28 in the previous survey to 22 in this survey. However, respondents were relatively optimistic about access to credit three months from now: 10 percent anticipate an increase, while most expect it to stay the same (58 percent), yielding an overall diffusion index of 39. This value, though, is lower than that for respondents’ future expectations in the previous survey (43).

And it gets worse:

As these economic factors affecting their clients continue to show weakness, service providers find themselves in a more difficult position. They reported that demand for their services increased strongly once again (87), similar to the last survey (84). Moreover, service providers expect demand for their services to increase again over the next three months. This is the only indicator for which the last survey’s future expectations (88) come close to matching what we see in the current survey (87).



As demand for their services continues to increase, service providers are facing an increasingly difficult environment for satisfying this demand.... There was a significant decrease in respondents’ future expectations relative to the last survey. In the previous survey, respondents expected a small increase in capacity in the future, as represented by a diffusion index of 55, but in the current survey, the index has fallen to 37, suggesting that respondents expect a decrease in their capacity to serve their clients three months from now. Funding problems continue to persist and may be a contributing factor to the operational difficulties experienced by the organizations. More organizations report facing funding problems than in the previous survey, as the diffusion index dropped from 38 to 31. Future expectations also declined from 38 to 28, indicating that organizations expect to continue to lose funding over the next three months.

So, if we may ask, if even the Fed finds that living, economic and credit conditions for everyone below the wealthy strata of society is being impaired by the Fed's ongoing economic tinkering, what justification is there for Quantitative Easing again?

h/t John Lohman