North West Consumer confidence improving but the spending squeeze goes on

North West consumers’ confidence about their level of disposable income is at its highest since 2011, according to the Deloitte Consumer Tracker, which began in Q3 2011. While sentiment remains in negative territory, the index rose to -30% in Q3 2013, from -44% in Q3 2011.

Other measures of spending confidence have also significantly improved this quarter in contrast to the same time last year, continuing an uptrend that has been underway for the past 12 months. The Deloitte Consumer Tracker has seen concern regarding job security in the region drop to -9% in the last year (-12% in Q3 2012). In addition, 11% of consumers report that someone in their household has started a new job in the past three months, compared to 8% in Q3 2012.

Myles Duckworth, head of consumer business at Deloitte in the North West, said: “The latest figures from the tracker show an increasing optimism among North West consumers, with anxiety levels improving across the board. This is not surprising, as the results form a direct correlation with recorded levels of falling unemployment in the region.

“However, it is also unsurprising that optimism in the area still remains low, with far more consumers expressing concern than confidence when it comes to the economy. Official data shows that earnings rose by 0.7% over the last year, lagging behind the rise in the index of inflation and taxes at 2.2%. Therefore, while the past year has seen the beginnings of a gradual economic recovery, the current reality is that real income levels remain in decline.”

Consumers report that over the last two years there has been some easing of upward pressures on the price of essentials such as groceries and transport. Consumers are also becoming more positive about the outlook for spending on discretionary items. Over the past two years, net spending on ‘going out’ and on holidays has increased to -25% (from -32% in Q3 2011) and -1% (from -15%) respectively.

Consumers are also positive about the outlook for 2014, with the net proportion of those expecting to see a rise in the value of their properties climbing from -4% (Q3 2012) to 17% (Q3 2013).

Nevertheless, there remains a significant gap in the rate of recovery between the cautious consumer market and the rapidly strengthening corporate sector, as Deloitte’s latest CFO survey found corporate appetite for risk has reached a six-year high.

Duckworth continued: “Waning spending power is the key issue for consumers in the North West. While improved consumer confidence suggests optimism regarding jobs, housing and the economy, it is spending that continues to suffer. After taking out inflation and tax changes, earnings have fallen by about 1.5% in the last year. This is actually a marked improvement from the income squeeze experienced in 2010 and 2011, but leaves consumer spending on a declining path until we see a pickup in earnings and drop in inflation.”