Hopes and Fears 2012

With consumption being such a large component (approximately 2/3rds) of aggregate demand, it is important to understand the role that consumer confidence plays when decisions are made upon major spending commitments.

The main factors affecting consumer confidence can be summarised as follows:

• Expectations of future living standards and income levels
• Unemployment trends and perceptions of job security
• Expectations of changes in direct and indirect taxation
• The current rate of interest and expectations of future interest rate changes
• Changes in household wealth including factors affecting share prices and house prices

The problem facing economists is that consumer confidence tends to be quite volatile from month to month, and notoriously difficult to measure. How confident are you today on a scale of 1-10? How confident are you about the state of the economy? These questions will bring a range of answers from different people and are based on subjective opinion. Nevertheless a range of polls exist to try and measure such factors.

Findings from this survey of adults in Great Britain, conducted by Ipsos MORI on behalf of new think-tank British Future, offer insights into the public’s hopes and fears for 2012. (the full data can be found on the Ipsos MORI website). However a piece on the guardian website captured my attention

It is no surprise, when questioned about the ‘biggest challenges facing Britain in 2012’, to see macroeconomic issues topping the rankings. Keep an eye out for any other pieces of evidence you can find which help you to make a judgment on consumer confidence levels – they play an important role in consumer spending levels but can be difficult to successfully monitor.