Rising Consumer Optimism Stops Short at Jobs

by: Marketing Charts

Fueled by rising investment confidence and expectations for the future, the RBC CASH Index for August 2009 rose to 37.5, a 15.1-point increase from July’s 22.4 reading. This represents a sharp uptick in consumer sentiment this month and a reverse of the slide experienced in June and July.

Although consumer sentiment remains volatile, the index saw at least some improvement in all four of its sub-indices - RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and RBC Jobs Index - which, taken together, gauge consumer attitudes on the current and future state of local economies, personal finance situations, savings and confidence to make large investments.

Highlights of the survey results:

  • Consumers’ expectations regarding future economic conditions rebounded strongly this month, as the RBC Expectations Index for August 2009 surged to 29.1, up 24.3 points from 4.8 in July. Economic expectations remain the most volatile aspect of consumer sentiment. Currently, 34% of consumers believe the economy in their community will be stronger in the next six months, while 19% believe it will continue to weaken. Just last month, consumers were split more evenly on this question, 31%/24%.
  • Confidence in current conditions has jumped after declines in the past two months, with the RBC Current Conditions Index for August 2009 standing at 36.6, up 13.3 points from July’s 23.3. Consumer comfort with making general household purchases has strengthened after several months of declines. In August, 25% of consumers say they are “more comfortable” making household purchases than they were six months ago, up six points from the 19% saying the same in July and reaching the highest level seen in a year.
  • The RBC Investment Index showed strong upward movement this month, rising to 43.9, a 13-point increase from July’s level of 30.9. After a month-long stock market rally, the share of American consumers who are confident investing for the future improved to 28% this month, from 22% in July. Additionally, 36% of consumers say it is a good time to invest in the markets, up from 25% in July. This is the highest level of confidence in the markets since the end of 2007.
  • Amidst signs that the rate of job loss is slowing, the RBC Jobs Index for August rose to 53.2, up 2.7 points from the 50.5 observed in July. Despite the uptick, the Jobs Index remains well below the 85.8 level recorded a year ago. The biggest negative influence on confidence in job security continues to be real experiences in job loss. Two-thirds (64%) of American consumers continue to say they or someone in their close circle have lost a job in the last half-year, the same rate observed over the last five months.

“The RBC Index for August showed a strong bounce in overall confidence but, as the relatively low readings in the sub-indices show, the economic recovery continues to face a number of headwinds, particularly in the job market,” said RBC Capital Markets’ US economist Tom Porcelli. “On that front, the RBC Jobs Index remains at a relatively low level and suggests a continued difficult labor backdrop to any recovery.”

In potentially positive news that might affect future months’ RBC Jobs Index, the US Bureau of Labor Statistics recently announced that the US unemployment rate dropped in August for the first time since April 2008.

About the index: The RBC CASH Index is benchmarked to a baseline of 100 assigned at its introduction in January 2002. This month’s findings are based on a representative nationwide sample of 1,000 US adults polled from July 30-August 3, 2009, by Ipsos Public Affairs.