Yippee, we’re out of recession!
The announcement that the country was out of recession was made on Thursday 25 October when positive GDP numbers for the third quarter were reported. Given that this survey was carried out over the weekend that followed it is, perhaps, unsurprising that this news has had a very positive impact in terms of consumer sentiment. Indeed, the index measuring views on how the economy will change over the next six months has risen by a massive 16.8 points from last month to -20.9. This the highest level this year and the highest rate of increase we have ever recorded.
But just two cheers for now!
While this is inevitably welcome news, it is necessary, for the sake of reality, to pour just a little cold water over it. Even though things are moving in the right direction, the balance of sentiment on the future of the economy remains negative and does so by some margin. There is also a significant risk that the strong GDP numbers might be a blip given the very weak preceding quarter and some exceptional impacts from factors like the Olympics. As such, there is a downside risk that sentiment could weaken again if the good economic news falters.
A bit more optimistic about personal circumstances.
While the index measuring personal financial circumstances rose by 4.3 points, this measure remains subdued and, notably, is now running below views on the general economy. This very neatly demonstrates the difference between high level economic numbers and how people actually feel on the ground. The truth here is that while people have seen an easing of pressure on disposable incomes over recent months they still feel pressured, uncertain and relatively unaffected by the recovery. Many households still have high levels of debt which need to be paid down, something which inevitably continues to concern many households.
The retail spending index is down slightly.
Retailers will be disappointed to see that the general uplift in sentiment has not filtered through to views on retail spending. While the index on this measure remains relatively high compared to the rest of the year, it has slipped slightly since last month. The particular challenge for retailers is that while consumers may think the economy will get better, and while they may even feel their own circumstances will improve, they have a lot of calls on their financial resources of which retail is but one. The key battle, therefore, is to persuade hard-pressed consumers that retail spending should come high up the batting order in their list of priorities.