One fell to a new low whilst two are at their joint lowest position. People are particularly pessimistic about the prospects for the economy and employment in the first 6 months of 2007 and overall confidence has fallen 15 points in two months and is now back at its low point of 83.
Consumers downbeat about employment in 2007
Consumers have a gloomy view of the outlook for the economy and jobs in the next six months. Nationwide’s Expectations Index has fallen by 19 points in two months, back to its low point of 81. It is also 20 points down on a year ago with employment concerns being the biggest factor driving the slump. The proportion of consumers who think that there will be fewer jobs available in six months has risen to its highest level of 36% and the proportion of consumers who think there will be many jobs available has fallen to a new low. All indices are compiled in partnership with TNS.
Base Rate increases continue to impact on consumer confidence
Nationwide’s Consumer Confidence Index shows consumers were much less happy at the end of 2006 than at the start. The Index continued to slide in December falling by 6 points to 83. This second consecutive fall means the index has dropped 15 points in two months and is now back at the low point seen following the surprise August Base Rate increase. This could be an indication that the impact of the two rate increases in 2006 is starting to hit home.
Confidence about the current economic and employment situation fell 5 points in December to 87 and the Present Situation index is now 5 points lower than a year ago – this is the largest fall seen in this index since February 2006. Over the last three months of 2006 a steadily increasing proportion of people were concerned about the current economic situation. Interestingly, consumers still feel relatively upbeat about their finances. 5% of consumers are gloomier about their household income than this time last year, but 85% still think their household incomes will be the same or better in six months time.
Spending Confidence falls for the third consecutive month
However, the picture for spending is less rosy. For the third year in a row consumers have felt reluctant to make major purchases such as a home, car or washing machine in December, possibly preferring to wait for the January sales. The Nationwide Spending Index fell 13 points in December – its largest ever fall – with confidence in purchasing major or household items reaching a new low of 77 – 18 points lower than this time twelve months ago. This suggests that retailers will have to continue to work hard to tempt shoppers to part with their money.
Fionnuala Earley, Nationwide’s group economist, said: “Consumers were much less happy at the end of 2006 than at the start of the year and don’t look too confident about the future. The subdued view of the labour market may be some comfort to the Monetary Policy Committee, perhaps indicating that wage demands will remain modest as the current round of wage negotiations continues. The committee may also be encouraged by the seeming reluctance of consumers to go out and spend. If this holds true in the sales season, the chance of a further hike in rates falls.”
House price expectations for the coming six months improve
Consumers’ expectations of future house prices rose in December to 3.2%, up from 2.9% in November. This increase brings consumer expectations back in line with those seen 12 months ago. The recent momentum in the market is likely to be the cause of this more buoyant view of house prices.
