Another turning point in sentiment

For a long time there has been a disconnect between the confidence that people have in their own financial position and expectations about the future path of the economy - this now seems to be changing and it doesn’t bode well for the chances of avoiding recession

The chart comes from the monthly consumer confidence survey published by gFK. What strikes me this time is the sharp downturn in sentiment about people’s own financial circumstances. Pessimists now outnumber optimists for the first time in many years and with this drop in confidence, there has been a fresh decline in the percentage of people saying that this is a good time to make a major purchase such as a new car or item of furniture.

We are now moving into a phase of the cycle when the impact of rising mortgage rates, higher food and utility bills and a bigger than expected decline in property prices are all combining to have a dramatic effect on consumer sentiment. Even though a short walk along any high streetreveals numerous generous savings accounts on offer from banks and building societies, the percentage of people replying that this is now a good time to save is also falling sharply. Fears of unemployment and negative equity (traditionally two motives to boost one’s savings) appear to be out-weighed by the squeeze on real disposable incomes from higher consumer prices and unavoidable utility bills. For millions of people who want to save a little more, there simply isn’t enough in the kitty at the end of the month to do this.

Taken as a whole, the new consumer confidence survey has slumped five points to -29, its lowest level since November 1990. The index is also down 27 points on a year ago.