Consumer Confidence in the doldrums
This month’s figures for the GfK NOP Consumer Confidence Index show that people are still too pessimistic about next year to give demand the boost it needs. Compared with last month, the overall index has stayed the same, but that is only because one element is much improved – whether this is a good time for major purchases. This is almost certainly because people are taking next month’s VAT increase into account. The other elements have all fallen:
- The average evaluation of people’s personal financial situation over the past 12 months has slipped from – 13 to – 16.
- For the next 12 months there is a marginal fall, from – 7 to – 8.
- The average evaluation of the general economic situation over the past 12 months has fallen from – 46 to – 51.
- For the next 12 months the fall is from – 22 to – 23.
As Nick Moon, of GfK NOP Social Research, said:
At the moment consumer confidence is being propped up by one thing – a belief that the run-up to Christmas and the VAT hike is a good time for big ticket retail purchases. This element of the index has distorted the overall index to make it appear static when in fact it is teetering on the brink.
There is a little bit of comfort for the government in the fact that people are more positive about the next twelve months than the last. But a comparison with the figures for December 2010 should bring them up short.
Looked at on this basis, two elements have improved. One is less important – the climate for major purchase was – 16 twelve months ago. The other is important but hardly news – the evaluation of the general economic situation over the past 12 months has improved from – 61 to – 51; last December were only just emerging from a major recession, its now been established for a year, so this element jolly well ought to have got better.
I suppose if I were a partisan supporter of the government I might say that the general election explains the difference. But then I’d also have to explain why the figure for the coming twelve months has fallen from – 6 to – 23 and why the average evaluation of people’s personal situation over the past year has fallen from – 14 to – 16.
That’s a fairly small shift, but what’s really noticeable is what’s happened to average expectations for the next 12 months:
Dec 2009: + 3
Dec 2010: – 8
Of course, you expect consumer confidence to be depressed in the aftermath of a recession. If you look at the tables that go back over a longer period, however, you can see that it’s been pretty depressed for quite a while – 2004, well before the recession. Take a look at the table for “Personal Financial Situation” and look at the lines for “Last 12 months” and “Next 12 months” – right up to the start of the recession people were, in effect, saying that the last 12 months had been disappointing but they expected things to get better next year.
Now, there’s lots of ways to read this, but what I’d say is that it looks like whistling in the dark. Economic policy must address the low share of product going to wages and the slow growth of household incomes. Of course, they will cause problems next year – we need a boost to household incomes to get the economy going again.
But this isn’t just a cyclical issue, the popular success of democratic capitalism has been built on the ability to deliver the goods for ordinary people. If that knack can’t be rediscovered the argument about whether it should be combined with more or less welfare state may come to seem academic.