US Consumer Sentiment Improves, Expectations Up

September 15, 2008

This article is included in these additional categories:

Financial Services | Retail & E-Commerce

Now that summer is nearly over, consumer confidence may be heating up, climbing 35 points to stand at 69.2, compared with 33.8 in August, according to the most recent results of the RBC CASH (Consumer Attitudes and Spending by Household) Index (via Retailer Daily).

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The RBC CASH Index, which advanced for the second consecutive month, was buoyed this month by an 81 point increase in Americans’ expectations for the future.

Gains were made in every other facet of consumer sentiment as well, including assessments of current conditions, investing and job security.

The RBC CASH Index is a monthly national survey of consumer attitudes on the current and future state of local economies, personal finance situations, savings and confidence to make large investments. It is composed of four sub-indices: RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and, RBC Jobs Index.

Below, some highlights of the survey results and RBC analysis.

RBC Expectations Index

Advancing out of negative territory for the first time in 2008, the RBC Expectations Index rose to 76.3 from its -4.7 reading in August.

The shift in the index, which signals a much more optimistic assessment that economic conditions will begin to improve soon, is due largely to an improvement in Americans’ expectations for personal finances and their local economy:

  • This month, nearly four in ten consumers (38%) believe their personal financial situation will be stronger six months from now (compared with 29% in August).
  • In addition, one-third of Americans (34%) believe their local economy will be stronger six months from now (compared with 23% last month).

Past experience demonstrates that attitudes regarding the future are more volatile and subject to events-based swings. This suggests that the expectations results should be viewed with some degree of caution. However, the strength of the positive shifts in the August and September results reinforce the claim that attitudes are moving toward a more optimistic position.

The RBC Current Conditions Index

The Current Conditions Index improved markedly in September to 55.2, compared with 36.7 in August.

Americans’ assessments of current local economic conditions rose this month with 14% rating their local economy as strong, compared with 10% last month.

In contrast, ratings of current personal finances held steady in September, with one in four consumers (25%) rating their current financial situation as strong, compared with 23% in August.

RBC Investment Index

Consumers’ confidence in the investment climate also climbed this month, sending the RBC Investment Index to a reading of 63.8, up from 42.6 in August.

31% of consumers reported that they are more confident in their ability to invest, compared with 25% last month. Americans’ attitudes regarding both stock and real estate investments also showed slight gains in September:

  • One-third of consumers (33%) believe the next 30 days will be a good time to invest in the stock market, compared with 28% in August.
  • More than four in ten consumers (44%) believe the next month will be a good time to buy real estate, versus 41% last month.

RBC Jobs Index

Although other facets of the economy are beginning to show improvement, consumers are still somewhat guarded about the job market, as evidenced by the merely 9.7 point increase in the RBC Jobs Index, which rose to 95.5 from 85.8 in August.

Americans’ confidence regarding overall job security improved this month, while expectations about personal job loss experience held steady:

  • The proportion of consumers who say it is likely that someone close to them will lose their job in the next six months held steady at 23%, compared with 25% in August.
  • 43% of Americans reported job loss in their immediate circle, compared with 41% in August.

“The dramatic rebound in consumer sentiment this month is as startling as some of the developments in recent weeks,” said T.J. Marta, Economic and Fixed Income Strategist for RBC Capital Markets.

“The prices of oil and gasoline are down 30% and 12%, respectively, from their peaks in July. The bailouts of Fannie Mae and Freddie Mac announced during the polling period represent a sweeping and historic move, which many hope will significantly mitigate the housing correction. In addition, this month’s survey occurred immediately after the Republican convention and just a week following the Democratic convention, both of which have generated hope for change in Washington.”

About the data: The RBC CASH Index is benchmarked to a baseline of 100 assigned at its introduction in January 2002. This month’s findings are based on a representative nationwide sample of 1,044 US adults polled September 5-9, 2008, by survey-based research company Ipsos Public Affairs.

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