Consumer Sentiment Nosedives

August 9, 2011

consumer-reports-index-aug-2011.JPGThe August 2011 Consumer Sentiment Index of the Consumer Reports Index, which measures how consumers are feeling financially when compared with a year ago, fell to its lowest level since December 2009 and registered its sharpest drop in two years, according to Consumer Reports. The August score of 43.4 is down sharply from 48.5 last month, which itself was stagnant from the June score of 46.2.

The August score is also down from the score of 44.7 reported in August 2010. Consumer Reports analysis indicates recent events in Washington about the debt ceiling debate fixed attention on the weak economy.

Young and Wealthy Optimism Dims

The most optimistic consumers are those age 18-34 at 54.4, and households with income of $100,000 or more at 53.3. The most pessimistic consumers: households with income less than $50,000 (38.9) and those who are age 65 and older (32.8). Each demographic group showed marked decreases in overall sentiment compared with July.

The Consumer Reports Sentiment Index captures respondents’ attitudes regarding their financial situation, asking them if they are feeling better or worse off than a year ago. When the index is greater than 50, more consumers are feeling positive about their situation. When it is below 50, more consumers are feeling worse. The Sentiment Index can vary from a high of 100 to a low of 0.

Consumers Experience Troubles

consumer-reports-trouble-aug-2011.JPGThe Consumer Reports Trouble Tracker Index increased to 60.6, a 10-point jump from last month. The most common factors behind the increase were the inability to afford health care, reduced health-care coverage, and missed bill payments. The Trouble Tracker Index is higher than last August’s 56.6.

The financial difficulties that were on the rise in the past 30 days were led by the inability to afford medical bills or medications at 16.3%, an increase from 13.3% in July. The number of people who reported missing a mortgage payment was 3.4%, up from 1.8% in July and 2.4% in August 2010.

Lower-income households, earning less than $50,000 a year, have been disproportionately affected. In the past 30 days: 25.2% were unable to afford medical bills or medications; 15.8% missed payment on a major bill (not a mortgage); 12.9% lost or had reduced health-care coverage; and 8.2% had negative changes to credit-card terms.

The percentage of consumers experiencing financial troubles increased in all four major regions of the country, with the West (+20.5%) and Central regions (+13.5%) the hardest hits. Troubles increased by smaller margins in the South (+5.1%) and Northeast (+2.9%) regions. Last month, troubles decreased in the West and Northeast regions.

The Consumer Reports Trouble Tracker Index focuses on both the proportion of consumers that have faced difficulties as well as the number of negative events they have encountered. The negative events include: the inability to pay medical bills or afford medication, missed mortgage payments, home foreclosure, interest-rate increase, penalty fees, reduced lines of credit or other changes in credit-card terms, job loss or layoffs, reduced health-care coverage or the denial of personal loans. The Consumer Reports Trouble Tracker Index is then calculated as the proportion of consumers that have experienced at least one of the negative events comprising the index multiplied by the average number of events encountered.

July, August Spending Looks Promising

consumer-reports-highlights-aug-2011.JPGConsumer retail behavior rebounded slightly from July and represented one of the few bright spots in the Index. The Consumer Reports Past 30-Day Retail Index, reflecting July activity, is 12, up from 10.2 the prior month. The Consumer Reports Next 30-Day Retail Index, reflecting planned purchasing in August, rose to 9.3 from 7.7 the prior month.

Looking in detail at the categories comprising the Consumer Reports Past 30-Day Retail Index, the month’s improvements from July to August stemmed from gains in small appliances (22 % compared to 15.9%), major home electronics (13.3% compared to 10.1%) and personal electronics (22.8% compared to 20.6%).

Among the retail categories not included in the index, past 30-day purchases, reflecting July activity, were unchanged for new cars at 3%, used cars at 5.1% and home purchasing at 1.3%. Purchasing during the next 30 days, reflecting planned August activity across these categories, is expected to show a slight increase for new cars and homes compared with the prior month. Planned purchases for used cars in the next 30 days are slightly lower at 3.4%, compared to 3.8% the prior month.

The Consumer Reports Retail Index looks at consumer purchases in the past 30 days as well as the outlook for planned purchases in the next 30 days across several categories. The Consumer Reports Retail Index represents the proportion of respondents that made a purchase in the following categories: major home appliances, small home appliances, major home electronics, personal electronics, and major yard and garden equipment. The Retail Index is a weighted calculation. For example, a major appliance is of greater value than a small appliance. Because of their size and frequency, car and home purchases are tracked separately.

Gallup: July Spending Up 9% YOY

Overall self-reported daily US consumer spending in stores, restaurants, gas stations, and online averaged $74 per day in July 2011, up 9% from $68 in July 2010 and 7% from $69 in June 2011, according to July 2011 Gallup survey data. Americans spent more per day, on average, in July than they have in any month since December 2010, when daily spending averaged $75.

About the Data: The Consumer Reports Index, conducted by the Consumer Reports National Research Center, is a monthly telephone and cell phone poll of a nationally representative probability sample of American adults. A total of 1,006 interviews were completed (756 telephone and 250 cell phone) among adults aged 18+. Interviewing took place between July 28 and 31.

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