Call this a recovery?
There’s more bad news today about the prospects for household spending. Firstly, the GfK NOP Consumer Confidence Index fell 4 points this month to -25 . There was a fall in all five measures that go to make up the Index, including a 6 point drop in people’s evaluation of the “general economic situation over the last 12 months”, which now stands at minus 50.
There is a little relief for the government in the comparatively moderate minus 18 score for the “general economic situation over the next 12 months” – but this is down 3 points on the month and 6 points on the year. In addition, its worth remembering that last month the Index rose ten points – which GfK NOP put down to the combination of the royal wedding and extra holidays – and the fall back still leaves the index 6 points higher than it was in April – but 6 points below the level it was at in June 2010. This is worrying: as Consumer Trends reminded us earlier this week, household spending accounts for about 60% of GDP.
Everyone now acknowledges that you can’t build a successful economy on nothing more than consumption, but it’s equally true that badly depressed domestic consumption will slow down the recovery in the productive sectors. A further indication of the gloom is the news about what is happening to house prices, mortgage defaults and the demand for mortgages. Today’s Nationwide house price index figures revealed that house prices are up a little on last month but still down on 12 months ago in every region except London. The only reason prices haven’t fallen further is because the supply of houses for sale is as subdued as the level of demand for them. If we look at the Index over the past ten years, we can see the huge impact of the recession, a recovery in prices that began in early 2009 and ended last summer, since when things have been slow:
Today’s Bank of England Credit Conditions Survey doesn’t improve the gloom much. The demand for secured lending increased a little in the second quarter of 2011, which is a relief after 5 successive quarters in which it fell, but lenders expect it to fall again in the next quarter:How has demand for secured lending for house purchase changed? (Net percentage balance)
Past 3 months
|Next 3 months||
The picture on mortgage defaults is even more worrying. The net percentage balance is down 1.5 points for the past three months – a small decline, but the net balance for the next 3 months is 23 points, and lenders expect default rates to increase further in the third quarter. Of course, this isn’t just a bad indicator for the economy, it’s also a sign that the sum total of human misery is about to increase.