Daily Research News Online no. 4993 - Consumer Confidence Turnaround

Consumer Confidence Turnaround

December 30 2005

The winter of 2005-6 looks like being a leveller in terms of consumer confidence around the world. In Europe, the German index is rising from a long slump while the UK's falls to its lowest of 2005, both according to GfK; while in North America, Canadian confidence is rebounding even more strongly than that in the USA.

The UK's consumer confidence headline index has fallen by one point in December and now stands at -9, the lowest it has been throughout 2005, according to the UK Consumer Confidence Survey conducted by GfK NOP (formerly GfK Martin Hamblin) on behalf of the European Commission.

The current reading is the lowest recorded since March 2003 (-10) and is six points lower than in December 2004 (-3). The annual moving average continues at its lowest since last winter, measuring -3. Carol Bernasconi, Divisional Director at GfK NOP commented: 'Consumer confidence is not yet showing signs of an upturn and a year which has seen an unprecedented level of natural disasters across the world has left this nation in a subdued mood.'

Perceptions of the development of personal finances over the last twelve months are unchanged at -4, and perceptions of the general economic situation in the country over the last twelve months are also stuck, at -29, a significant nine points lower than December 2004. Meanwhile expectations for the next 12 months are also slightly down on November and ten points down on a year ago, at -20.

The major purchases measure has dropped three points from +5 in November to +2 this month, compared with +8 a year ago. Perceptions of whether now is a good time to save rose by just 1 point to +16 compared with November.

A sample of 2109 individuals aged 16+ were interviewed between 30th November and 19th December 2005. GfK NOP is the UK arm of the GfK Group, which is online at www.gfk.com

Meanwhile in Germany, GfK reports the most confident mood in a long time. The Consumer Climate Survey for December found 'the mood in both eastern and western Germany ... calm and positive as 2005 draws to a close', indicating a 'belief in the new government's power of enforcement' according to GfK.

The propensity to make larger purchases rose again significantly in Germany in December 2005, climbing above zero for the first time in four years; but consumers remain more cautious about their private income expectations. The populations of eastern and western Germany are generally agreed in their mood.

The indicator for expectations of the German economy rose sharply by 20.5 points at the end of the year, continuing the upward trend which had been sustained since summer 2005 after a blip in November. The figure of 11.9 is the highest value since July 2002. Consumers in western Germany were particularly optimistic about this but those in the east are also feeling more buoyant than before.

Private income expectations for December improved slightly to -11.3 (up 1.6 points). On this measure, the mood in eastern Germany was once again considerably more negative, perhaps reflecting less acceptance here of added financial burdens anticipated by the government, including a hike in VAT and reduced commuting expenses.

Propensity to buy, up 24 points on November, has risen above the long-term average for the first time in 4 years, and stands at 2.1, the first positive value recorded since the end of 2001, just before the introduction of the euro.

The overall consumer climate indicator rose to 3.4. The World Cup which will be held in Germany next year is not only influencing Christmas trade, but is also set to generate additional consumption in the coming months, says GfK. The company concludes that the mood among consumers will depend in the longer term on whether the economic trend also leads to an improvement in the employment market.

The GfK consumer climate MAXX survey is based on around 2,000 consumer interviews conducted each month on behalf of the EU Commission.

US consumer confidence improved by a substantial amount in December, posting the fourth largest monthly gain in a quarter century, according to the University of Michigan. Director Richard Curtin says declines in gas prices were responsible for the gain, restoring most of the loss since the spike in gas prices last August. December gains were concentrated in consumers' evaluations of their financial situation, while the one area that posted losses was consumers' views of home buying conditions, which fell to the lowest level in fifteen years.

The Index of Consumer Sentiment was 91.5 in the December 2006 survey, up from 81.6 in November and the recent low of 74.2 in October, but well below last December's 97.1. Similarly, the Index of Consumer Expectations rose to 80.2 in December 2005, up from 69.6 in November and 63.2 in October, but remained below the 90.9 recorded in the December 2004 survey. The Current Economic Conditions Index was 109.1 in December, up from 100.2 in November, and above last December's reading of 106.7.

On the down side, consumers are more aware of news of job losses than they have been for two years, while widespread perceptions of high home prices and rising mortgage rates produced a decline in home buying attitudes to a five-year low.

The survey is reported in more detail online at www.umich.edu

Canadian sentiment has meanwhile rebounded even more strongly, according to two surveys. The latest Decima-Investors Group Index of Canadian Consumer Confidence shows a substantial improvement over the last quarter. The Index reports that 'Canadians are more upbeat than Americans for the first time in five years of tracking'.

The Canadian index is up 9.7 points on the previous quarter to 84.8, with all five of its components showing improvement. Negative sentiment has dropped sharply across the board, led by reduced concerns about the near term health of the Canadian economy. According to Decima CEO Bruce Anderson, 'The summer and early fall gave a lot of people pause, as the cost of reconstruction post Katrina, combined with unprecedented energy prices, made it easy to fear an economic downturn. Today, the dollar is strong, inflation is down, unemployment is at record lows, the TSX has shrugged off a bad October, and it's hard for consumers to feel anywhere near as anxious as they did only weeks ago.'

The index is closely modeled on the University of Michigan's Index of Consumer Sentiment. Data is gathered through the Decima teleVox national telephone survey conducted with a representative sample of 2,018 Canadians aged 18+ between December 8 and 18, 2005. The authors and sponsors are online at www.decima.com and www.investorsgroup.com

Meanwhile the latest Consumer Confidence Index from TNS Canadian Facts confirms the strong revival, concluding that 'Consumer confidence in the current state of the Canadian economy has risen dramatically since mid-November and the outlook for future performance is also better'.

The company's Present Situation Index, which aggregates sentiment about the overall state of the economy, the employment situation and household income, is up 4.6 points on November and 7.5 on a year ago to 110.5. The Expectations Index, which measures Canadians' estimation of the economy six months from now, rose 2.7 points to 100.9. However the Buy Index, which looks at the major purchase climate, has barely moved at 96.0.

VP Richard Jenkins says consumers shook off some of their concerns about the economy heading into the holiday season. However, he added 'The year-over-year decline in the Buy Index and the failure for expectations to improve would suggest that while assessments of the current economy and job market are very positive, Canadians are quite cautious about the sustainability of their current riches'.

The index is part of a global study conducted by TNS in 18 countries around the world. Canadian fieldwork is conducted using the firm's national bi-weekly telephone omnibus service, TNS Express Telephone. A total of 1,015 nationally representative Canadian adults were interviewed between December 12 and 15.

TNS Canadian Facts is online at www.tns-cf.com and the group at www.tns-global.com.

MrWeb/DRNO will launch a new section offering continuous monitoring of consumer confidence indices and reports worldwide, as part of its NewsTabs service, in the third week of January 2006 - please watch www.drno.org for announcements..