Confidence continues to edge upwards in August

The Nationwide Consumer Confidence Index recorded a two point increase in August to 63. All the indices rose during the month with the Expectations Index seeing the biggest increase of three points to 94; continuing the general upward trend which began at the start of the year. The Present Situation Index, which has generally been falling since the end of 2007, rose by one point in August to 17; the first time this index has increased since April 2009.

Martin Gahbauer, Nationwide's chief economist, said: "The moderate increase in confidence this month indicates that, for the first time since April, consumers are beginning to feel more positive, not only about the future, but also about the present situation. The rise in positive sentiment across all the indices is no surprise as a number of key economic indicators continue to show that we may have reached the bottom of the current recessionary cycle. It is likely that there will be a protracted recovery and we may see some volatility in the data as factors such as the rise in fuel duty affect sentiment. Although positive news about the housing market may have helped boost confidence, consumers' views about spending remain relatively cautious, possibly because the level of heavy discounting seen earlier in the year has now subsided."

Confidence may be returning

Overall consumer confidence has been increasing since March, which may indicate that people are starting to believe that economic conditions are beginning to improve. At 63, the Consumer Confidence Index is now 19 points higher than at the start of the year (44) and 13 points higher when compared to the same period in 2008 (50). Sentiment towards the current economic situation has also improved since the start of the year. In February, the percentage of those believing the current economic situation to be bad was 86%, compared to 72% in August.

Sentiment towards the future economic situation continues to improve...

As the pace of economic decline slows and some key commentators suggest that the worst of the recession may be over, confidence continues to build around the future economic situation. The number of those believing the economy will be worse in six months time has been falling steadily since the start of the year. 21% of people now think conditions will be worse in six months, compared to 53% in January and 57% in August 2008. This appears to mirror the general view that market conditions will begin to improve as we move into next year.

...and the outlook is brighter for the labour market

After a dip in confidence last month, people appear to be feeling slightly more positive about the current and future employment situation. There have been fewer large scale redundancy and insolvency announcements in the last few weeks and this may have contributed to the more upbeat attitude during August. The number of those believing there are currently many jobs available increased from 16% in July to 18% in August. Similarly, the percentage thinking there will be more jobs available in six months time increased to 23%, up from 20% in July.

Consumers remain cautious about making major purchases

Attitudes towards spending have been upbeat in recent months, driven by a prolonged period of sales which now appears to be subsiding. With fewer opportunities to grab a bargain, consumers seem to be taking a more wary view of parting with their money. The number of those believing now is a good time to make a major purchase such as a house or car fell from 35% in July to 33% in August and those with an indifferent view (neither a good nor a bad time to buy) increased from 19% in the previous month to 23%.
Expectations about house price rises over the next six months fell slightly in August. Consumers now expect the value of their home to increase by 0.2% over the next six months, compared with 0.5% in July.