5th December 2007
Consumer Confidence falls 12 points
The Nationwide Consumer Confidence Index fell by 12 points to 86 in November – the most it has ever fallen in a month*. A fall in consumer confidence was not unexpected given the spate of gloomy news of the last few months which now appears to be taking its toll. Continuing uncertainty about the credit crunch, petrol breaching £1 per litre and higher staple food prices now all seem to be affecting consumers’ sentiment, causing the index to fall to its lowest point ever*.
All four confidence indices dropped in November. The smallest fall was in the Present Situation Index, which reflects feelings about the current economic and employment situation - this fell by 8 points. In contrast, the Spending Index (consumers’ willingness to spend) and Expectations Index (how consumers feel about the economic and employment situation and income in six month’s time) both dropped by 14 points to 63 and 83 respectively.
The UK Nationwide Consumer Confidence Index uses a similar methodology to that of the US Conference Board, the most highly regarded Consumer Confidence Index in the US, widely acknowledged as a key US economic indicator. Nationwide’s monthly survey is compiled in partnership with TNS.
Fionnuala Earley, Nationwide’s chief economist, said:
“We’ve been expecting consumers to react to the events of recent months for some time so the fall in the index this month was not a surprise. Uncertainty about the effects of the credit crunch together with rising oil and food prices seem to be affecting feelings about jobs and the future economic situation. With this in mind, it is natural that consumers would think about tightening their belts this Christmas and this is reflected in the weaker spending index. Going forward into 2008, the expectation of at least two cuts in the Base Rate should begin to take pressure off finances and restore some confidence.”
Less optimism about the future
Sentiment about the labour market is weaker than in earlier months with almost a quarter of people believing that there are currently few jobs available. Having said that, more than half still think that there are some or many jobs available. Consumers are less happy about the future. The 14 point fall in the Expectations Index was the second largest monthly fall since the series began, and brings it down to its lowest level since January 2007, when overall consumer confidence hit its lowest point. Consumers are less optimistic about the economy and the job situation, but remarkably this has still had little impact on their view of household finances - 89% think their household income will be the same or higher in six months time.
Consumers might be less likely to splash out this Christmas
The number of people who are confident about buying a major item such as a house or a car continued to fall in November. Over half (57%) of consumers think now is a bad time to make a major purchase compared to 51% in October. Only 35% think now is a good time to purchase household goods such as electrical items – a drop from 40% in October. Some of this fall will reflect seasonal factors as consumers consider buying such goods in the sales, but the weaker sentiment about the future economy and jobs market will undoubtedly have a role to play.
House price expectations continue on a downward trend
House price growth expectations continued on a downward trend this month with consumers anticipating just 1.2% growth in prices over the next six months - down from 1.9% in October. This is in line with expectations and is consistent with Nationwide’s forecast that house price inflation will come in at around 0% in 2008.