U.S. consumer confidence edges down as consumers search for a signal on the economy’s direction: RBC Consumer Outlook Index
Survey shows lack of confidence in state and local government bonds
NEW YORK, February 3, 2011 — U.S. consumer
confidence for February declined slightly for a second month
as consumers await a definitive signal on the direction of
the economy, according to the monthly RBC Consumer Outlook
Index. The Index for February declined to 44.5, down 0.4 points
from January's 44.9 but still above the 42.6 points recorded
a year ago. In line with the volatility in the municipal bond
market, the survey also found that a majority of Americans
are not confident in municipal bonds as an investment.
"Although the RBC Consumer Outlook Index has done nothing
but move sideways since hitting a post-recession high in December,
it's surprising that consumer confidence didn't fall even
more, given recent events," said RBC Capital Markets
Chief U.S. economist Tom Porcelli. "The survey was conducted
in the midst of daily headlines about unrest in Egypt, rising
fuel prices and a sharp decline in the markets - all of which
historically weigh on confidence. It appears that the Index
was backstopped by future expectations, which reached their
highest level in a year. This suggests that consumers view
current events as transitory and are willing to look past
them."
State and local governments' budgets, already strained by
falling tax receipts and rising expenditures, could soon face
another challenge: investors who lack confidence in their
financial health and are less willing to buy their bonds.
A large majority of consumers surveyed (62 per cent) are not
confident in municipal bonds as an investment, according to
the RBC Consumer Outlook Index, with only 22 per cent saying
they find these bonds to be a good investment. Weakening demand
for bonds could push up borrowing costs for governments, further
pressuring their budgets.
"The consumer response confirms that the continual stream
of news stories about state and local government fiscal problems
is having a negative impact on investor perception,"
said Chris Mauro, head of Municipal Bond Research. "The
results are consistent with the sizable outflows from municipal
bond mutual funds that we have seen over the last several
weeks. Given the current challenging budget environment, consumers
will likely continue to see these negative headlines for at
least the next several months."
This month's decline in the RBC Consumer Outlook Index is
driven mainly by a weaker Current Conditions Sub-Index,
which edged down to 34.4 from 35.0 last month, and softening
of confidence in the labor market, with the Jobs Sub-Index
declining for the first time in four months, slipping to 50.9
from January's 52.1.
When asked where they think new jobs will appear over the
next three months, most consumers expect the healthcare industry
(45 per cent), information technology field (31 per cent),
and manufacturing sector (27 per cent) will produce the most
jobs.
In contrast to the findings of the Current Conditions and
Jobs Sub-Indices, the Expectations Sub-Index perked
up slightly to 56.8, from 55.3 in January, indicating that
more Americans think the economy will get better in the next
year. One-in-four consumers (23 per cent) say they think the
economy in their community will be stronger in six months,
compared to 20 per cent who say it will be weaker. Moreover,
30 per cent expect their personal finances to strengthen in
the next six months, compared with only 20 per cent who expect
them to weaken.
While expectations for strengthening personal finances could
potentially generate higher spending, consumers' expectations
of price increases continue to climb. Gasoline and fuel prices
show the highest increase, with 88 per cent of consumers expecting
fuel prices to go up in the next year. Overall, 56 per cent
of consumers expect inflation to increase over the next five
years.
The Investment Confidence Sub-Index held steady at
39.0, a tick above last month's 38.9. One-in-four consumers
(22 per cent) think it is a good time to invest in stocks,
compared to 29 per cent who believe it is a bad time to invest,
the highest level of confidence in the markets in more than
a year.
Three-in-five Americans (60 per cent) say the country is
on the wrong track, compared to 40 per cent who say it is
headed in the right direction. The "wrong track"
number, although improved from last month, remains above the
60 per cent level for the tenth consecutive month.
About The RBC Consumer Outlook Index
The RBC U.S. Consumer Outlook Index provides the most up-to-date
and comprehensive outlook of U.S. consumers based on data
collected from interviews with a nationally representative
sample of more than 1,011 U.S. adults conducted over a multi-day
polling period each month by Ipsos, the world's second-largest
market and opinion research firm. The results in this news
release reflect some of the findings of the Ipsos poll of
1,011 U.S. adults conducted January 28-31, 2011. The RBC Consumer
Outlook Index is released within 36 hours after the U.S. online
panel members are interviewed. Weighting is employed to balance
demographics and ensure that the survey sample's composition
reflects that of the U.S. adult population according to Census
data and to provide results intended to approximate the sample
universe.
Contacts:
Kait Conetta, RBC Capital Markets,
kait.conetta@rbc.com,
(212) 428-6409
Greg Hamrock, Hubbell Group,
ghamrock@hubbellgroup.com,
(781) 878-8882
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