Circuit breaker needed to restore recession-level confidence

Today’s GfK consumer confidence measure for the European Commission marks the third successive monthly decline, slipping 1 point to -31, the same level as in April, but down 13 points on a year ago.

Across Europe, as in the UK and US, a negative feedback loop is now established. Unresolved European and US sovereign debt issues have led to falls in consumer, business and investor confidence resulting in weak economic activity and the threat of a double dip recession in the next year.

Pessimism about the economy main driver of confidence lower

In the UK confidence is mainly weaker on the back of rising pessimism about the economic situation in the coming year, down 4 points to -31, the lowest level since February. Overall consumers regard the current and future economic situation now as at its worst since May 2009.

Both forward and backward measures of personal finances edged up 1 point to -11 and -24 respectively, well below levels of a year ago (-3 and -12).

Spending confidence remains depressed

Spending confidence continues to be depressed with no change in either the savings climate (-31) or savings intentions (-33) measure on the month. The former is considerably lower than a year ago – likely impacted by rising prices and stretched personal finances. These very weak measures make the bringing forward of Christmas sales inevitable.

Improvement in inflation expectations boost Misery Index

The JGFR Misery Index for August improved slightly as a result of a better inflation expectation measure – gaining 3 points on the month to 74 from 77 in July. Unemployment expectations shed 1 point to 45, the second successive monthly worsening in the measure. Overall the Misery Index gained 2 points to 119 compared to 121 in July and 117 in August 2010.

Financial Wellbeing Index 51 points down on a year ago

Financial wellbeing – a combination of a net household saving, spending confidence and personal finances measures – picked up slightly in August – up 3 points to -88, although is 51 points lower than a year ago. The 12-month moving average slid 5 points to -65, its lowest level since September 2009.

Falling confidence a feature of the western world – a need for visionary political leadership

With August consumer confidence measures falling in the EU (down by 4 points), euro area (down by 5 points) and in the US (down 15 points – the biggest point drop since October 2008) the onus is greatly on politicians to lead a concerted effort towards creating circuit breakers to boost optimism and get people economically active again. In the UK a Plan A+ will need to be drawn up this autumn.

The JGFR UK August Consumer Confidence Monitor is published on Wednesday September 7^th. For details please contact 0208 944 7510 or email j.gilbert@jgfr.co.uk