Consumer confidence slips as election looms
Consumer Confidence has fallen across a range of indicators in the run up to the election, according to Nationwide's latest monthly consumer confidence report.
The Consumer Confidence Index fell by nine points in March, immediately wiping out all increases that have been seen since the start of the year. This is the largest monthly fall the Index has experienced since July 2008. Similarly, the Present Situation and Expectations indices also fell back during March with the former dropping by four points. While future expectations still remain high compared to historical figures, the 11 point drop seen in March was a sharp fall from February's figure, when the Index reached its highest level since records began*. By contrast, the Spending Index picked up during the month with a two point rise taking this index to 96 - a similar level to where it was at the same time last year.
Expectations about house prices dropped by six tenths of a percentage point in March but still remain in positive territory. Consumers now expect the value of their home to increase by 0.9% over the next six months, compared to 1.5% in February. The more conservative outlook can perhaps be credited to a monthly drop reported by various house price commentators in February causing consumers to reign in their expectations for the future.
Martin Gahbauer, Nationwide's chief economist, said: "Following a very positive start to 2010, the Consumer Confidence Index has undergone a strong adjustment during March, reversing the growth seen since the beginning of the year. Two underlying factors that may have had some bearing on March's figures are the Chancellor's Budget and the imminent general election. With an election looming, more people will be unsure as to whether they will be better or worse off in the coming months, and recent concerns about the state of the economy and employment prospects could still be playing on the minds of consumers. Perhaps unsurprisingly, the movements during March are not dissimilar to the changes we saw in the run up to the 2005 election where consumers appeared to be uncertain about the UK economy and employment situation. However, consumer pessimism appears to be stronger this time around as the UK continues to recover from its deepest recession since the 1930s.
Consumers display greater uncertainty in the employment situation...
"The expectation of a closely run general election, and the inherent concerns that consumers display at Budget time, naturally generate uncertainty among consumers. The addition of industrial unrest and union activity within both the public and private sectors will have done little to allay fears around the employment situation, and the March figures show growing concerns in this area when compared to February. Surprisingly, decreased sentiment in the employment situation has happened against a backdrop of falling unemployment figures. However, while official figures show unemployment to be down, the labour market remains very fragile and consumers understandably remain cautious.
...but spending confidence begins to return
"Following three months of decline, spending confidence picked up slightly in March. Confidence in this area remains relatively high when compared to the past 24 months and the March figures echo what we have seen from other industry measures. Official figures showed a strong rebound in February retail sales from January's snow-related weakness, and survey indicators suggest that growth continued into March. However, March did see a small drop in the percentage of consumers who believe now to be a good time to buy household goods despite the positive sounds coming from the high street."