Consumer confidence dampened in cooler climate

Following a two month period of stability, the Nationwide Consumer Confidence Index dropped three points to 50 in September. Ongoing economic uncertainty, a further fall in house prices, rising unemployment and the impact of high food and fuel costs may have contributed to the drop in confidence.

The Present Situation Index fell seven points to 39 during the month, reflecting the gloom about the current state of the economy. However, the Expectations Index and the Spending Index remained flat in September, perhaps suggesting that consumers do not think that things will continue to deteriorate at the current pace.

Fionnuala Earley, Nationwide's chief economist said: "Consumers have been adjusting the way they feel about the current economic and employment situation since July and this continues to be the main driver behind the drop in overall confidence in September.

While consumers recognise that there are some good deals available, rising unemployment, falling house prices and the continued turmoil in the financial markets are likely to mean that confidence will take some time to recover."

Consumers downcast about current economy

Consumers have become more pessimistic about the current economic and employment situation since the start of the year. Two thirds (66%) of those questioned believe the current economic situation is bad. Just under a quarter (23%) of consumers think that the economic situation today is normal and only one in ten (10%) believe it to be good.

People are more hopeful when considering the future economy

Consumers appear to be more optimistic about the future economic situation in September, with one in seven (14%) believing that the economy will be better in six months time, compared to 12% at the same time last year. However, the stabilisation in expectations of the future economy is likely to be a reflection of worsening conditions now.

44% of consumers believe the economic situation will be the same or better in six months time increasing from 39% the previous month. Those that believe the economy will be worse in six months time decreased from 57% in August to 53% in September. Consumers may be beginning to feel that things are unlikely to continue to deteriorate at the same pace over the next six months.

Consumers are less content with the labour market but more willing to spend

Consumers' feelings about the current and future employment situation deteriorated further in September, which is likely to be fuelled by reports of rising unemployment. Over a third (35%) believe there are not many jobs available today, up four percentage points from 31% in August. Nearly half (48%) think that there will be few jobs available in six months time. Yet consumers are more optimistic about making purchases, with around one in five (18%) believing now is a good time to purchase major goods, such as a house or a car, up from 14% last month.

This is likely to reflect the fact that consumers recognise prices are falling and there are some good deals available. However, as almost two thirds (64%) think it's a bad time to buy a house or a car it seems unlikely that there will be much increase in purchase activity.

Expectations about house price growth over the next six months dropped marginally, consumers now expect prices to fall by 4.9% over the next six months, compared with 4.6% in August.