Consumers continued to shake off the economic gloom of the early summer according to the August Nationwide Confidence survey (CCI). The gain in the headline rate mirrored the GfK August measure earlier in the month, both rising by 4 points, the first monthly improvement for the CCI since April, clawing back a quarter of the 16 point slump in May, June and July.
Unlike the GfK measure, the CCI is lower than a year ago when the economy was still in recession suggesting that the economy will remain very weak in the coming months.
While both surveys showed returning optimism both in relation to personal finances and the economy, worries about the job outlook and household income growth will constrain consumer spending.
Of the three sub-indices comprising the headline Nationwide measure the Expectations Index gained 7 points on the month partly recovering the 13-point fall in July. The Present Situations Index is unchanged on the month but up on a year ago. More people believe there are many/some jobs available (27%) than a year ago (18%).
A rise in people believing it to be a good time to make major purchases – such as on a house or car boosted the Spending Confidence Index – up from 96 to 100 on the month and well above its long-term average of 94. In the past 2 months 40% of adults believe it is a good time to buy household goods - the highest level since last January. Growing awareness of the rise in VAT next January may be having an impact on spending attitudes.
While the headwinds facing consumers are very strong and actual spending is very cautious, the mood of consumers towards spending continues to be relatively upbeat – with consumers seemingly believing there are bargains to be found and discounts negotiated. However a lack of cash/credit for purchases will be a key factor preventing window shoppers becoming buyers.
In the latest Nationwide survey a near record low of consumers (12%) expect household income to be higher in six months time and 15% expect it to be lower. A year ago 14% of adults expected household income to be higher and 13% lower.
Last year there was a big positive ‘back to school’ feeling among consumers in the September surveys, with the economy moving out of recession in Q4. This year the reverse may happen with consumer sentiment falling back as more negative publicity about cuts and the threat of widespread strikes looms resulting in the economy likely to be pushed back towards recession.
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Please ring John Gilbert on 0208 944 7510 / 07740 027968.