Optimism Reigns

Contrary to widespread negativity about the economic outlook, a number of indicators suggest much greater optimism among businesses, investors and consumers.

• The European Commission Economic Sentiment indicator (ESI) for the UK is at its highest (98.3) since April 2008 (98.4). This measure is a weighted index covering separate measures of industrial confidence (40% weighting), service confidence (30%), consumer confidence (20%), construction confidence (5%) and retail trade confidence (5%).

• February’s Services Sector Purchasing Managers Index (PMI) compiled by the Chartered Institute of Purchasing and Supply, jumped to 58.4, up from 54.5 in January – a much bigger rise than expected. This is the highest level since January 2007, with the level of the new business index also at a 3-year high.

• Both the FTSE 100 and FTSE 250 have continued to climb higher as investor sentiment remains bullish. The former index hit its best level since the collapse of Lehman Brothers in September 2008, while the FTSE 250 hit a 21-month peak.

• GfK NOP and Nationwide consumer confidence indices made good gains in February as consumers responded to the end of the recession. The Nationwide CCI rose 8 points to 83, its best score since December 2007.

• Consumer optimism measured by both GfK NOP and Nationwide are at or near to record levels. The GfK optimism measure - that asks people about their view on the general economic situation in the next 12 months - gained 6 points to +4 on the month and is up 44 points on February 2009. This measure has been historically strong since the early autumn. Partly this may be a reaction to the end of the recession, but it is also shows a remarkably positive attitude towards the future, given the enormous public sector deficit needing to be swiftly reduced.

• UK economic optimism in February according to the European Commission is the highest among major European countries. Interestingly it is the non-euro European Union countries - the UK, along with Sweden and Denmark, who are the most optimistic consumers.

• The Nationwide Expectations measure (121) is at its highest since the consumer confidence survey started in May 2004 and is up from 61 on a year ago. Both indices have a large optimism gap between what consumers feel is the current economic position and what they expect in the future.

• GfK measures of unemployment and inflation expectations in the next 12 months that combined form the JGFR Misery Index, recorded their best measure in 3 years in February as job worries fell sharply and inflation expectations are well below levels of recent years.

• Expectations about house prices rose slightly in February according to the Nationwide Index with consumers expecting the value of their home to increase by 1.5% over the next six months compared to 1.1% in January.

One less positive note is that while consumers are far more optimistic about the economy, this does not mean they are in spending mode. Both GfK and Nationwide spending indices were weaker in February which restricted the upward movement in the JGFR February Wellbeing Index to a 1 point rise on the month to -27, but up from –72 a year ago.

Commented John Gilbert, Chief Executive of JGFR: “The surge in optimism about the economy flies in the face of the tough measures needed to reduce the fiscal deficit the country has built up. What is driving such optimism - which has been around since last autumn - is puzzling. How to capture this optimism will be a challenge for all political parties as the general election draws closer.”

If you are interested in obtaining the accompanying charts in dashboard format please contact John Gilbert on 0208 944 7510 or email info@jgfr.co.uk.