Consumers showing signs of increased confidence

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Consumers are more confident the economy will be better than today in six months’ time for the first time in over five years.

Nationwide Consumer Confidence Index recorded an increase in June, moving up to 58 from 54 in May. This increase reflects that overall, consumers feel increasingly positive, as confidence levels are now very close to those recorded this time last year (59 in June 2008).

The key driver for the increase in confidence has been in the Expectations Index. However, the Present Situation Index continued to fall, as positive sentiment towards the current economy and employment market fell again.

Martin Gahbauer, Nationwide’s chief economist, said: &quotDuring June, consumers’ confidence continued to gradually increase – a trend which has been seen for the last three months. Recently, there has been much talk by industry commentators suggesting that the worst of the recession may be over, which appears to have fed into consumer sentiment. For the first time since the launch of the Consumer Confidence Index, more people expect the economic situation in six months time to be better than believe it will be worse. However, the strongest belief by consumers is that the economy will be the same in six months time. This expectation of a plateau in economic conditions has grown steadily over the last year.&quot

Despite the overall rise in confidence, consumers show continued wariness about the employment situation as more companies make job loses or cut workers’ hours, and the official UK unemployment figure reached a 12-year high. In June last year, 50% of people thought there were jobs available, while now this has dropped to just 19%. There is similar pessimism about the employment situation in the next six months. 54% of people are now expecting that there will be few jobs available by the end of the year, however as this is the lowest figure since September 2008, sentiment is becoming less negative.

Over the last year there has been a distinct trend showing that consumers feel increasingly confident that now is a good time to buy large items, such as homes or cars. This time last year, 18% of people thought it was a good time to buy these major items, however this has risen to 40% and has been around this level for the last five months. This strength in sentiment may have been fuelled by falling house prices which have made property appear more affordable and also the decrease in car prices, especially in the second-hand market. Confidence in making a household purchase, such as white or brown goods, saw a 1% increase from the previous month to 42%. The number of those believing now is a bad time to buy such goods fell from 17% in May to 13% in June.

Expectations about house price falls over the next six months improved further in June. Consumers now expect prices to fall by just 0.6% over the next six months, compared with 1.6% in May.

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