Retailer Daily

The Future’s so Bright, Consumers Gotta Wear Shades

Following two straight months of decline, the Conference Board Consumer Confidence Index regained lost ground in August 2009, driven by an optimistic consumer future outlook. The Index, which dropped from 54.8 in May to at 49.3 in June, increased from an adjusted score of 47.4 in July to 54.1 in August. The Consumer Confidence Index, based on the Conference Board’s Consumer Confidence Survey, consists of the Present Situation Index, which decreased from adjusted score of 23.3 in July to 24.9 in August, and the Expectations Index, which increased from an adjusted score of 63.4 in July to 73.5 in August. This marks the Expectations Index’s highest score since it reached 75.8 in December 2007. Brief highlights from each index follow.

Present Situation Index

The percentage of consumers rating current business conditions as “bad” decreased from 46.5% to 45.6%. However, the percentage rating current business conditions as “good” also decreased, from 8.9% to 8.6%. The percentage of consumers saying jobs are “hard to get” decreased from 48.5% to 45.1%, and the percentage saying jobs are “plentiful” increased from 3.7% to 4.2%.

Expectations Index

The percentage of consumers anticipating an improvement in business conditions during the next six months increased from 18.4% to 22.4%, while the percentage expecting conditions to worsen decreased from 19% to 15.8%. Consumers also took a more favorable outlook on short-term employment prospects, with the percentage expecting more jobs in the next six months rising from 15.5% to 18.4%, and the percentage expecting fewer jobs falling from 19% to 15.8%. The proportion of consumers expecting an increase in their incomes increased slightly from 10.1% to 10.6%. Lynn Franco, director of the Conference Board Consumer Research Center, said the most recent consumer confidence figures demonstrates confidence is on the mend, but spending is unlikely to increase anytime soon. “Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations,” said Franco. “As long as earnings continue to weigh heavily on consumers' minds, spending is likely to remain constrained." Recent consumer and financial news has been mixed, offering no clear indicator of why consumer expectations improved so dramatically between July and August. The Employment Trends Index remained flat for third straight month in July 2009, signaling that layoffs may have peaked, although significant new hiring is not expected. In addition, U.S. consumer credit and borrowing rates decreased in June 2009, and the consumer credit rate also decreased in Q2 2009. While this suggests a possibly healthier economic situation for consumers, it also indicates that consumers are cutting back on spending and may reflect consumers having access to credit and loans denied or limited. In another mixed development, U.S. consumers saw their personal income and disposable personal income (DPI) drop in June 2009, but still increased spending. On the positive side, unemployment rate dropped from 9.5% in June 2009 to 9.4% in July 2009. As reported by the Bureau of Labor Statistics, this marks the first reduction in the unemployment rate since April 2008. However, the civilian labor force participation rate and employment-population ratio remained stagnant, and the number of long-term unemployed rose by approximately 7.5% for the month. On the negative side, the U.S. trade deficit rose 4% in June 2009, and the new Consumer Reports Index indicated lower levels of financial security and spending and higher levels of stress and unemployment among U.S. consumers in August 2009. In addition, the GDP (Gross Domestic Product) shrank 1.2% in Q2 2009, and the RPI (Restaurant Performance Index) slid from 98.3 in May 2009 to 97.8 in May 2009, registering its second straight decline after five consecutive months of growth. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. The cutoff date for August’s preliminary results was August 18, 2009.