- Consumer sentiment stabilised in August
- Nationwide Consumer Confidence Index nudged down to 100 from 101
- Base Rate cut on 4 August boosted confidence
- People concerned about employment situation
- Consumer House Price Forecast rose
Confidence Stabilising
The Nationwide Consumer Confidence Index for August shows that after a gloomy early summer, which saw a large drop in sentiment, confidence has stabilised at a more positive level. The index remained broadly stable in August at 100, compared to 101 in July, much stronger than 95 in June.
Behind the Consumer Confidence Index lies an interesting trend: consumers’ current confidence fell whilst sentiment about the future recovered. The present situation index fell in August from 104 to 99, whilst the expectations index rose from 99 to 101. Consumers appear to be uncertain about the current state of affairs but increasingly confident about the future.
Stuart Bernau, Nationwide executive director, said: “With only a marginal reduction in August, consumer confidence appears to have stabilised. Consumers’ fears about the future, which pushed the index down in May and June, faded in July causing a rebound. August saw confidence level-out.
“The figures illustrate that whilst consumers are uncertain about the current economic situation, they have become more positive about how the future will unfold. August’s rate cut appears to have boosted sentiment and it will be interesting to see how they behave over the coming months.”
Impact of MPC on Confidence
The Base Rate cut on 4 August seems to have had a significantly positive impact on confidence, in particular by boosting consumers’ expectations about the future.
In the fortnight prior to the rate cut the headline index stood at 98, but after the cut confidence rose to 101.
Pre-4th August Post-4th August Overall
Nationwide Consumer Confidence Index 98 101 100
As such, early indications are that the cut may address the MPC’s concerns about consumer spending that “downside risks remain in the near term”, although the Bank will be looking to retail sales figures to confirm this.
Nationwide’s MPC Forecast for 8 September
Following such a close vote in August, it is highly unlikely that the MPC will change rates in September. In fact, it seems probable that the Bank of England will leave rates unchanged for the rest of the year.
Nationwide MPC Forecast,
Probability of Base Rate Change
Rate Increase 5% “Following the rate cut in August, Nationwide forecasts a 90% probability that rates will not be changed in September.”
No Change 90%
Rate Decrease 5%
Employment Uncertainty
The biggest area of uncertainty shown in the index surrounds employment. In August, the number of people thinking that there are currently “many/some” jobs available fell by 7% to 56% - its lowest level since Nationwide started measuring consumer confidence. Similarly, 25% of people think there are “not many/few” jobs available, up 5% from last month to its highest level since May 2004 when the index began.
Confidence in the number of jobs available in the future has also fallen. Only 47% believe jobs will be available in the future (its second lowest level) while 25% believe there will be few jobs available.
Taken together, these figures highlight a significant loss of confidence in employment prospects, which is part of a trend seen since the beginning of 2005.
This coincides with a persistent increase in the number of people out of work and claiming benefits over the last 6 months. While the numbers involved are relatively small, negative media coverage of these figures seems to have hit confidence.
Consumer House Price Forecast
In August, consumers forecast that house prices would rise by 2.9% over the next six months, compared with their forecast of 2.0% in July.
The rise in the forecast was caused by a combination of fewer people expecting house price falls and a less pessimistic forecast from those still expecting falls.
Nationwide Consumer Confidence Index
Overall, the index shows that consumer confidence fell slightly in August. Following a volatile period, the index fell back by just 1 percentage point to 100 (May 2004=100).
Sub-Indices
In addition to the main Nationwide Consumer Confidence Index, the Society tracks three other indices: Present Situation Index, Expectations Index and Spending Index.
Present Situation Index: fell five percentage points from 104 to 99. The index monitors consumers' views of the current economic and employment situation. The balance of confidence about the current state of the economy fell by 4 percentage points and confidence in the number of jobs currently available fell by 12 percentage points. (See back page for data)
Expectations Index: rose from 99 to 101. The index monitors consumers' views of the economic and employment situation in 6 months time. Confidence in the economy and in household income in six months time both rose. This suggests that the fears consumers harboured in the previous two months have not been realised. Consequently, consumers are feeling more sanguine about the future which has led to the main index stabilising.
Spending Index: rose from 113 to 115. The index monitors consumers' views of whether this is a good time to make a major purchase, such as a house or car, or household goods. While confidence in making major purchases rose, confidence in making household purchases fell.
The Nationwide Consumer Confidence Index
The NCCI replicates the highly regarded U.S. Consumer Confidence Index issued by the U.S. Conference Board which has run since 1967 and is widely acknowledged as being a key economic indicator.
The Nationwide Consumer Confidence Index uses the U.S. Conference Board methodology and is compiled in partnership with TNS, part of the same group that conducts the research for the U.S. Index.
The Nationwide Consumer Confidence Index is published on the Wednesday before each monthly MPC meeting.
