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Consumer confidence declines sharply as gas prices and mortgage
rates spike, according to RBC CASH Index
NEW YORK, May 5, 2006 — Amid concern over rising
gas prices and interest rates, consumer confidence dropped
sharply in May after holding steady in April, according to
the most recent results of the RBC CASH (Consumer Attitudes
and Spending by Household) Index, which measured the attitudes
of 1,000 Americans this week. Economic attitudes weakened
across the board, with consumers increasingly viewing the
current economy negatively and displaying growing pessimism
about the future. As a result, the RBC CASH Index for May,
released today by RBC Financial Group, stands at 67.1, compared
to 89.4 in April.
"The collapse in U.S. confidence during May is not surprising,
considering that consumers were rocked by multi-year high
mortgage rates, gas prices near $3.00 per gallon, a high since
just after last year's hurricanes, the immigration debate
and demonstrations, and the increasing potential for conflict
with Iran," said T. J. Marta, Economic and Senior Currency
Strategist for RBC Capital Markets. "For perspective,
the current situation and expectations components are both
at extremely low levels - near those observed in the two months
after last year's hurricanes. Although some of the factors
weighing on people could dissipate in coming weeks, the decline
in confidence is consistent with our view that U.S. economic
growth has peaked for the cycle and will moderate through
the remainder of the year."
The RBC CASH Index is a monthly national survey of consumer
attitudes on the current and future state of local economies,
personal financial 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 1,000 adults polled May 1-3, 2006 by
survey-based research company Ipsos Public Affairs. Highlights
of the survey results include:
- Consumers' economic outlook has plummeted sharply during
the past month, as seen in the RBC Expectations Index,
which stood at 6.3 in May, a dramatic drop from April's
56.9. A quarter of Americans (24%) think their local economy
will be weaker six months from now, up from 16 per cent
last month. Women aged 18-44, Midwesterners, rural residents
and those with household incomes of less than $25,000 annually
all are more pessimistic than the country as a whole.
- Negative views of the current state of the economy
now outweigh positive views, with one in four Americans
(25%) rating their local economy as weak, slightly more
than the 21 per cent who rate their local economy as strong.
The RBC Current Conditions Index dropped
to 90.3 in May from 98.0 in April, the second straight month
of declining perceptions about the strength of respondents'
local economies.
- As Americans' views of both the current economy and their
future prospects darken and interest rates increase, they
are less confident of their ability to make investments
or major purchases. The RBC Investment Index
saw its third straight month of decline, dropping to 79.9,
down from 86.7 in April and a 16-month high of 101.5 in
February 2006. More than half (53%) of all Americans believe
the next 30 days will be a bad time to invest in the stock
market and a strong majority (60%) believe the next month
will be a bad time to buy real estate. Half (51%) of all
Americans are less comfortable in making a major purchase
such as a house or car and 47 per cent say they are uncomfortable
making other household purchases.
- In spite of broader pessimism about the economy, concern
over job security is not widespread among Americans. However,
early signs of anxiety are becoming visible. The RBC
Jobs Index for May 2006 stands at 110.3, a 14 point
drop from April's 124.5. However, early signs of anxiety
are becoming visible. Confidence about personal job security
slipped somewhat, with 45 per cent of Americans saying they
are less confident about job security than they were six
months ago (versus 39 per cent in April). Moreover, 36 per
cent of American reported they or someone they know has
lost a job due to economic conditions, compared to 30 per
cent in April.
The impact of rising gasoline prices on consumer confidence
can be seen dramatically in the number of Americans who think
the country is on the wrong track. In May, 73 per cent of
respondents to the RBC CASH Index survey said they thought
"things in this country" are off "on the wrong
track" - up from 69 per cent in April, and 59 per cent
one year ago in May 2005.
In addition, the May 2006 RBC CASH Index survey came during
the height of debate over immigration and proposals for granting
immigrants guest worker status, which could have increased
consumer anxiety.
The entire RBC CASH Index report can be viewed at www.rbc.com/newsroom/rbc-cash-index.html.
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Contact :
Kevin Foster, RBC Capital Markets, (212) 428-6902
Loretta A. Healy, The Hubbell Group, Inc. (781) 878-8882
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