Americans are beginning to shed their anxiety about the economy which has dominated consumer sentiment over the past two years, and are less pessimistic about both their local economies and job security, according to findings from the RBC Consumer Outlook Index. Driven by improving attitudes about the local economy, the RBC Consumer Outlook Index climbed to 72.7 in May 2010, up 8.1 points from April's 64.6 level. However, consumers remain very concerned about their personal finances and deeply skeptical about investing and the national economy.
The uptick in consumer confidence has been slow, since many consumers do not see things as especially stronger than last month. The share of consumers rating their local economy as "very weak," at 52 percent, continues to drop, down from 55 percent in April and 59 percent in March. In addition, 22 percent expect their local economy to grow stronger in the next six months, up from 18 percent last month.
Consumers are also slightly less concerned about job security. Forty-two percent of consumers say it is unlikely that someone they know will lose their job in the next six months, significantly better than the 36 percent saying that in April. However, the number of consumers actually experiencing job loss in their immediate circle is unchanged from last month, at 49 percent.
"This month's RBC Consumer Outlook Index shows that consumers' negative attitudes are moving towards neutral, but not yet into positives – they are not yet ready to say that things have gotten better, especially when it comes to the national economy," said Marc Harris, co-head of global research at RBC Capital Markets. "Few Americans are ready to say they are enjoying good times."
Despite consumers' increased confidence in employment and the local economy, they remain very concerned about the national economy. Overall, 31 percent of consumers believe the U.S. economy will improve in the next year, while 26 percent believe it will worsen and 43 percent expect it to stay the same.
Summer spending plans are a historically good barometer of consumer sentiment, and this year's plans show consumers are remaining cautious. Fewer than one-in-eight consumers say they plan to spend more this year than last on travel and vacations (12 percent); entertaining and socializing (11 percent); apparel or clothing (eight percent); and dining out (eight percent).
With summer vacations approaching, a large majority of consumers plan to stay at home on "stay-cation" (63 percent) or drive somewhere for a vacation (59 percent). Consumers are much less likely to fly domestically for a vacation (26 percent) or travel internationally (12 percent).
More broadly, the share of Americans thinking the United States is generally on the wrong track climbed to 60 percent in May, with 40 percent saying the country is on the right track. In April, 56 percent said the country was on the wrong track, and 44 percent said it was in the right track.
Consumers remain concerned about their own finances. Half of consumers (49 percent) say that their personal financial situation is bad compared to three months ago, with 45 percent expressing this in April. Similarly, 44 percent continue to describe their current finances as weak (compare to 43 percent in April).
Looking ahead, only 20 percent of consumers believe their debt level will improve in the next three months, down from 23 percent in April. A majority (52 percent) believes that their discretionary income, after bills are paid, will remain the same in the next three months.
Concern about the broader economy has left consumers jittery about investing in the markets or real estate. Only 20 percent of consumers think it is a good time to get into the stock market, a level that is unchanged from last month. One-third (32 percent) say that this month is a good time to buy real estate, down slightly from April's 34 percent. However, the number of consumers actually shopping for a new house inched up to eight percent in May 2010, compared to six percent last month.
The overall impression from this month's RBC Consumer Outlook Index is of consumers slowly growing more confident about their local situations but not yet convinced that a robust recovery is here to stay at the national level.
"Consumers are saying 'Show-Me.' They want to see proof of solid, long-term economic improvement before they are willing to believe the recovery is here to stay," said Harris. "Until they see that proof, they are going to continue to withhold judgment, and that could affect their spending and investment plans."
