RBC CASH Index: U.S. Consumer Confidence Drops In The Face Of Rising Energy Prices And Slowing Housing Market
Increased Confidence In Job Security Only Bright Spot
Friday, August 11, 2006
Washington, DC — Unable to shrug off the effects of rising energy prices and a slowing housing market, consumer confidence dropped in August, according to the most recent results of the RBC CASH (Consumer Attitudes and Spending by Household) Index, which measured the attitudes of 1,001 Americans earlier this week. Consumer discontent is widespread, with the greatest decline occurring in confidence regarding economic expectations. The only bright spot is consumer confidence in job security which rebounded this month. As a result, the RBC CASH Index, released today by RBC Financial Group, declined to 74.8, compared to 80.1 in July.
"The drop in the overall index to 74.8 extends the downtrend in place since February, a decline which is consistent with the rise in energy prices and a slowing in the housing market during this period," said T.J. Marta, Economic and Fixed Income Strategist for RBC Capital Markets. "The price of crude oil, for example, has risen close to $20/bl to a record $77.03 in recent sessions, and the national average for a gallon of regular unleaded gas had risen 80 cents to a record $3.04. Additionally, the rate for a 30-year mortgage had risen 0.80 per cent to 6.79 per cent during this period, and while that has fallen in recent weeks to 6.42 per cent, homeowner affordability has dropped to its lowest level since 1989 and existing home sales continue to fall from their June 2005 peak." Added Marta, "RBC believes that the U.S. consumer will continue to retrench during the second half of 2006."
The RBC CASH Index is a monthly national survey of consumer attitudes on the current and future state of local economies, personal finance situations, savings and confidence to make large investments. The Index is composed of four sub-indexes; RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and, RBC Jobs Index. The 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 1,001 U. S. adults polled from August 7-9, 2006 by survey-based research company Ipsos Public Affairs. The margin of error was plus or minus 3.1 per cent. Highlights of the survey results include:
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- Consumers' confidence in the future waned considerably as the RBC Expectations Index dropped 12 points in August to 21.8 - the third straight month of declining expectations. Overall sentiment regarding expectations for local economies dipped this month, with only one in five (19 per cent) of Americans believing their local economy will be stronger six months from now (compared to 24 per cent stronger in July), not statistically different than the one in five (21 per cent) who believe the local economy will be weaker in the near future.
- However, consumer expectations regarding personal financial situations held steady in August, with nearly four in ten respondents (37 per cent) saying they expected improvements in personal financial strength, unchanged from July. In addition, the number of Americans believing they or someone they know will be at risk of losing their job due to economic conditions in the next six months stayed at 15 per cent, also unchanged from last month.
- The RBC Current Conditions Index for August stands at 92.1, down from the 96.6 observed last month. Most evaluations of current conditions this month were not statistically different from July - roughly one in five (21 per cent) rate their local economy as strong (compared to 23 per cent in July) and similar proportions rate their personal financial situation as strong (26 per cent strong in August, unchanged from last month). Consumers are, however, showing more negative opinions about their current personal economic conditions. Americans are less confident in their ability to make a major purchase like a home or car (53 per cent less comfortable, compared to 45 per cent less comfortable in July), as well as other household purchases (48 per cent less comfortable in August, compared to 41 per cent less comfortable last month).
- Despite less confidence in the ability to make a major purchase, Americans are more positive about the strength of the real estate market in the near future. Nearly four in ten (38 per cent) think the next 30 days would be a good time to buy real estate, compared to 35 per cent in July.
- Consumer sentiment toward the investment climate took a downward turn this month, resulting in a six-point drop in the RBC Investment Index, which stands at 83.2, compared to 89.6 in July. While Americans' overall confidence in their ability to invest in the future held steady, with 41 per cent reporting they are more confident in August, compared to 42 per cent more confident in July, their attitudes toward making major purchases dropped considerably as only 28 per cent said they were more comfortable this month, compared to 35 per cent in July.
- Despite widespread discontent, consumer confidence regarding job security recovered somewhat this month from a seven-point drop in July. The RBC Jobs Index for August stands at 120.5, compared to 116.9 in July 2006. Reports of direct job loss experience decreased this month, with fewer than one third (30 per cent) of Americans reporting that they or someone they know personally has lost their job as a result of economic conditions in the past six months (compared to 34 per cent in July). Looking forward, those believing direct job loss experience is unlikely in the next six months held steady at 53 per cent, unchanged from July.
Senior Research Manager
Ipsos Public Affairs
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