Consumer Confidence Drops to Lowest Level in Six Years – RBC CASH Index

February 8, 2008

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Consumer sentiment as measured by the RBC Consumer Attitudes and Spending by Household (CASH) Index has dropped to the lowest levels since the CASH Index was created six years ago: it stands at 48.5 for February, almost eight points below January’s 56.3.

Consumer sentiment fell across the board, driven especially by declining confidence in current conditions and growing worries about job security and investing, according to the survey of 1,006 Americans conducted this week by Ipsos.

“This month’s reading indicates a very poor mood among consumers who are confronted with news about a housing recession, falling stock prices, problems in the banking system and a deteriorating overall economic environment,” said T. J. Marta, economic and fixed income strategist for RBC Capital Markets.

“With consumer spending driving 70% of the US economy, a pullback in spending increases the risk that the country could tip into recession.”

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. The Index is composed of four sub-indices: RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and, RBC Jobs Index.

Highlights of the survey results:

  • The RBC Current Conditions Index plunged more than 15 points in February, down to 63.6, compared with 78.9 in January.
    • Attitudes toward the current state of the economy remained statistically unchanged, with 35% of consumers rating the local economy as weak, compared with 32% rating it weak in January.
    • Most of February’s steep decline is due to a significant weakening in people’s evaluations of their own finances and reduced confidence in making household purchases: Currently, one in three American consumers (31%) rate their personal finances as weak (up from 27% in January).
  • Consumers’ economic outlook remained in negative territory during the past month, as measured by the RBC Expectations Index, which climbed slightly to -7.0, compared with -8.2 in January.
    • However, while confidence in the future of the economy has stabilized somewhat, it remains near the record low of -13.5 in the aftermath of Hurricane Katrina in September 2005.
    • Future expectations for personal finances remain low, with only one in three consumers (33%) expecting their personal finances to be stronger in six months.
    • However, this was offset slightly by an increase in the number of consumers who think their local economy will be better in six months (23% in February, versus 19% in January).
  • Americans’ muted view of their prospects is reflected in their attitude towards making investments or major purchases. The RBC Investment Index declined more than 13 points to this month, to 62.6, down sharply from 76.3 in January:
    • Consumers are less confident about making investments, with more than half (52%) saying they are less confident about investing for the future, versus 48% in January.
    • In addition, only 22% of consumers say they are more comfortable today making a major purchase, such as a house or car, compared with 28% in January.
    • One seeming inconsistency actually underscores the loss of consumer confidence: Two in five consumers (41%) think that the next 30 days will be a good time to buy real estate, up from 36% in January. This is likely because consumers think that a soft housing market offers bargains, even if they themselves are reluctant to buy.
  • The RBC Jobs Index for February stands at 101.3, compared with 106.9 in January.
    • Despite the decline, which drops confidence in job security to the lowest level since September 2003, Americans’ confidence in their jobs remains comparatively strong.
    • The decline was fed by an increase in the number of consumers who expect that they or someone they know personally will lose their job in the next six months, to 24% in February from 18% in January.

The complete RBC CASH Index report for February 2008 can be viewed at the RBC site.

About the data: Each subindex of 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 1,006 US adults polled February 4-6, 2008, by survey-based research company Ipsos Public Affairs.

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