Gloomy outlook for consumer confidence in 2007

For the second consecutive month, all 4 Nationwide Consumer Confidence Indices fell – 1 fell to a new low whilst 2 are at their joint lowest position.

Consumers have a gloomy view of the outlook for the economy and jobs in the next six months. Nationwide’s Expectations Index has fallen by 19 points in just two months, back to its low point of 81. It is also 20 points down on a year ago with employment concerns being the biggest factor driving the slump. The proportion of consumers who think that there will be fewer jobs available in six months has risen to its highest level (36%) and the proportion of consumers who think there will be many jobs available has fallen to a new low. All indices are compiled in partnership with TNS.

Base Rate increases continue to impact on consumer confidence

Nationwide’s Consumer Confidence Index shows consumers were much less happy at the end of 2006 than at the start. The Index continued to slide in December falling by 6 points to 83. This second consecutive fall means the index has dropped 15 points in just two months and is now back at the low point seen following the surprise August Base Rate increase. This could be an indication that the impact of the two rate increases in 2006 is starting to hit home.

Confidence about the current economic and employment situation fell 5 points in December to 87 and the Present Situation index is now 5 points lower than a year ago – this is the largest fall seen in this index since February 2006. Over the last three months of 2006 a steadily increasing proportion of people were concerned about the current economic situation. Interestingly, consumers still feel relatively upbeat about their finances. 5% of consumers are gloomier about their household income than this time last year, but 85% still think their household incomes will be the same or better in six months time.

Spending Confidence falls for the third consecutive month

However, the picture for spending is less rosy. For the third year in a row consumers have felt reluctant to make major purchases such as a home, car or washing machine in December, possibly preferring to wait for the January sales. The Nationwide Spending Index fell 13 points in December – its largest ever fall – with confidence in purchasing major or household items reaching a new low of 77 – 18 points lower than this time twelve months ago. This suggests that retailers will have to continue to work hard to tempt shoppers to part with their money.

Fionnuala Earley, Nationwide’s Group Economist, said: “Consumers were much less happy at the end of 2006 than at the start of the year and don’t look too confident about the future. The subdued view of the labour market may be some comfort to the Monetary Policy Committee, perhaps indicating that wage demands will remain modest as the current round of wage negotiations continues. The committee may also be encouraged by the seeming reluctance of consumers to go out and spend. If this holds true in the sales season, the chance of a further hike in rates falls.”

House price expectations for the coming six months improve

Consumers’ expectations of future house prices rose in December to 3.2%, up from 2.9% in November. This increase brings consumer expectations back in line with those seen 12 months ago. The recent momentum in the market is likely to be the cause of this more buoyant view of house prices.

Nationwide Consumer Confidence Index

The Nationwide Consumer Confidence Index fell 6 points in December (research took place from 20th November 2006 to 17th December 2006).

Sub-Indices

In addition to the main Nationwide Consumer Confidence Index, the Society tracks three other indices: Present Situation Index, Expectations Index and Spending Index.

Present Situation Index: fell 5 points in December. The number of people who are positive about the current employment situation fell from 50% to 46% whilst the number of people who are negative about the current economic situation has risen from 19% to 23%, only the second time ever that it has reached this level.

Expectations Index: fell 6 points to 81. Almost 1 in 3 consumers (31%) remain concerned about the economy in six months time and there has been a big shift in consumers’ perception of the future employment situation. The number of people who think there will be fewer jobs available in six months time has risen to 36%, up from 32% in November. This is the highest ever level seen. The number of people who are positive about the future employment situation has fallen from 37% in November to 35% in December, its lowest ever level.

Spending Index: fell 13 points to its lowest ever level of 77. The detailed data shows that confidence in making either a major purchase such as a house or car or household purchases is at an all time low since May 2004. This is perhaps not surprising as consumers are likely to wait for the winter sales before making household purchases such as fridges or washing machines.