‘Realistic’ Consumers Cause Slide in July Sentiment

July 21, 2009

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A dramatic decline in Americans’ economic expectations for the near future have driven down the July 2009 RBC CASH (Consumer Attitudes and Spending by Household) Index to 22.4, a decrease of 11.9 points from June’s 34.3 reading.

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The findings indicate that the index is continuing the downward slide it began in June, on waning fervor for the US government’s stimulus and recovery plans.

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. It is comprises four subindices: RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and, RBC Jobs Index.

Specific subindex resuts:

  • Consumers’ expectations regarding future economic conditions hit a wall this month, as the RBC Expectations Index plunged sharply, dropping 36.1 points to 4.8, compared with 40.9 in June. After four consecutive months of rising hopes that the economy would turn around in the next six months, many Americans are coming to grips with the idea that things still may not improve for a while.
  • Consumer confidence in current conditions has stabilized after a dramatic drop last month, with the RBC Current Conditions Index for July 2009 standing at 23.3, an insignificant decrease of 0.5 points compared with June’s 23.8. This stability follows a plunge of nearly 50% last month, the largest single drop in the index since the start of the recession. Analysis indicates that, prior to the drop in last month’s survey, current conditions were buoyed artificially by soft gas prices and tax refunds.
  • The RBC Investment Index showed little movement this month, standing at 30.9 for July 2009. This is a 3.5 point decrease from June’s level of 34.4. While most of the decrease in investment confidence stems from consumers’ weakening financial conditions, they also are less comfortable with investing and major spending. Nearly two-thirds (64%) of consumers say they are less confident now in their ability to make investments for the future, including retirement and education, than they were six months ago. Consumers’ confidence in the stock market also waned after the rollback in the equity markets that began in mid-June. Currently, 68% of consumers say it is a bad time to invest in the stock market, compared to 63% in June.
  • Despite the unemployment rate reaching the highest level in 26 years, the RBC Jobs Index for July saw a minor uptick to 50.5, up 3.8 points from the 46.7observed in June. The slight increase in confidence in the job market comes alongside growing indications that the rate of job loss is slowing. In July, 31% of consumers say it is likely that they or someone in their family or friends will lose their job in the next six months. This is down from the 35 per cent expressing job security concerns in June.

“The RBC CASH Index for July confirms what we first saw last month: Consumers are getting realistic. They’re coming to grips with the idea that we will not see a quick economic turnaround but instead face a lengthy, drawn-out recovery,” said Larry Miller, RBC Capital Markets managing director. “Consumer confidence is resetting to the levels seen earlier this year and is likely to remain there until there is concrete evidence of a turnaround.”

About the index: 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 1,000 US adults polled from July 9-13, 2009, by Ipsos Public Affairs.

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